Chris Williamson, chief business Economist at IHS Markit, says:

The provisional PMI data for July point to the pace of economic growth slowing for a second successive month, though importantly this cooling has followed an unprecedented growth spurt in May. Some moderation of service sector growth in particular was always on the cards after the initial reopening of the economy, and importantly we’re now seeing nicely-balanced strong growth across both manufacturing and services.

While the second quarter may therefore represent a peaking in the pace of economic growth according to the PMI, the third quarter is still looking encouragingly strong.

Short-term capacity issues remain a concern, constraining output in many manufacturing and service sector companies while simultaneously pushing prices higher as demand exceeds supply. However, we’re already seeing signs of inflationary pressures peaking, with both input cost and selling price gauges falling for a second month in July, albeit remaining elevated.

Inflationary pressures and supply constraints – both in terms of labour and materials shortages - nevertheless remain major sources of uncertainty among businesses, as does the delta variant, all of which has pushed business optimism about the year ahead to the lowest seen so far this year. The concern is this drop in confidence could feed through to reduced spending, investment and hiring, adding to the possibility that growth could slow further in coming months.

On Wall Street, the opening bell has rung and US stocks have risen further, helped by strong results from Twitter and Snap, after reaching record highs yesterday. The Nasdaq closed at a new all-time peak while the S&P 500 just fell short.

• Dow Jones up 152 points, or 0.4%, at 34,975
• S&P 500 up 20 points, or 0.48%, at 4,388
• Nasdaq up 62 points, or 0.4%, at 14,747

The Australian stock market closed at a record high on Friday, thanks to gains in healthcare and tech stocks which countered losses in financial and energy firms. It rose 0.1% to 7,394.4.

Oil prices have just stabilised after earlier declines and are broadly flat, at $73.30 a barrel for Brent crude, and $71.97 a barrel for US light crude.

Oil is on track to end the week little changed from the previous week following three weekly declines. It has staged a remarkable recovery from Monday’s 7% sell-off, as traders are betting that supply with stay tight as demand recovers.

The Opec oil cartel and its allies agreed on Sunday to pump an extra 400,000 barrels a day each month from August.

Here is our full story on the slowdown in UK business activity, which has triggered concerns that the economic recovery is stalling.

Simon French, chief economist at Panmure Gordon, tweets:

On the markets, shares are pushing higher.

• UK’s FTSE 100 up 58 points, or 0.8%, at 7,026
• Germany’s Dax up 0.9% at 15,660
• France’s CAC up nearly 1% at 6,544
• Italy’s FTSE MiB up 1.1% at 25,076

Jesús Cabra Guisasola, associate at Validus Risk Management, has looked at the PMI surveys and the impact on sterling and the euro:

While the eurozone PMI composite came out higher than expected in July 60.6 (vs 60 estimated) and rising for the fifth consecutive month, PMI in the UK fell considerably and unexpectedly to 57.7 from 62.2 in June, compared to the consensus of 61.5.

On the UK side, the economic recovery has been stronger due to the success in its vaccination programme and new daily Covid-19 cases have been coming in lower during the past few days. However, it will be important to see if this is sustained in the long run given the reopening could help to spread the virus more rapidly.

Meanwhile, risks continue to be on the table for the euro area with the delta variant spreading across the continent. Moreover, inflation has been well below the ECB’s target, which has provided some further support for the central bank to maintain its ultra-dovish tone and favourable financing conditions.

Muted reaction in the currency market with both the euro and pound trying to recover some of the losses against the dollar, testing the $1.18 and $1.38 resistance levels.

Let’s have a look at today’s other main stories.

The football European Championship and England’s run to the final helped UK retail sales increase by 0.5% in June, according to official figures.

Premier Foods, the maker of Mr Kipling cakes, has reported stronger than expected sales in the three months to early July as customers tucked into low-sugar versions of their sweet treats, reports my colleague Jillian Ambrose.

The UK’s competition authority has called for the government to intervene in the electric car charger market to prevent “charging deserts” and increase availability in locations outside London, which remain underserved, reports Jasper Jolly.

The Competition and Markets Authority (CMA) also said it had opened an investigation into the dominance of one provider, Electric Highway, in the fast-charging network at motorway service stations.

The south-west of England will have the highest proportion of low-income workers affected by a £20-a-week cut later this year in universal credit payments, according to analysis by the TUC that illustrates the widespread culture of low pay from Cornwall to Gloucestershire, reports our economics writer Phillip Inman.

More than four in 10 universal credit claimants in the south-west have a low-paid job that qualifies them for benefits, a larger percentage than any other region, said the trade union body.

Hugh Gimber, global market strategist at JP Morgan Asset Management, says rising business costs are likely to be passed on to consumers in the months ahead. Unilever talked about this yesterday:

Gimber says:

The UK economy remains on the road to recovery, but the path ahead is becoming bumpier.

Supply bottlenecks are the limiting factor on activity, and appear largely to blame for today’s PMI data failing to meet expectations. While activity remains strong, businesses are struggling to fill job vacancies and shortages of raw materials are starting to bite. The result is clear, with average business costs rising at the fastest pace on record. We expect many of these price increases to be passed onto consumers in the coming months, putting upward pressure on inflation in the near term.

In recent weeks it has become evident that there is some disagreement within the Bank of England on the future path of policy. For those members of the Monetary Policy Committee who were yet to make up their minds ahead of next month’s meeting, today’s print may well serve to highlight the downside risks to growth. Even with inflation set to rise in the coming months, we expect the Bank will be wary of tightening policy too quickly given the risk that this could put the brakes on a still nascent recovery.

James Smith, developed markets economist at ING, has crunched the UK PMI numbers.

The latest UK purchasing managers indices, while still healthy, hint at an economic recovery that’s stalling as Covid-19 cases rise. We’re still expecting a positive third-quarter growth figure in the region of 1.5%, though clearly further progress towards pre-virus levels relies on prevalence falling back once more.

Despite the rise in self-isolation rates over recent weeks, the effect on confidence has been less pronounced than we’d have expected – so far anyway.

Assuming the virus situation improves into the early autumn, then the economy will still likely be close (or maybe back) to pre-virus levels by the end of the year.

However, there’s little doubt that further progress in the recovery really relies on Covid-19 prevalence falling again. It’s a reminder that the recovery is likely to be far from smooth.

It also suggests the Bank of England is unlikely to adopt more hawkish language at its August meeting, despite some upbeat comments from some MPC members recently.

He adds:

Concerns over the Delta variant have meanwhile overshadowed the passing of “freedom day”, and were a key factor alongside Brexit and rising costs behind a sharp slide in business expectations for the year ahead, which slumped to the lowest since last October.

The PMI indicates that GDP growth will likely have slowed in the third quarter, after having rebounded sharply in the second quarter.

Firms’ costs rose at a rate unprecedented in over 20 years of survey history as supply shortages pushed up the price of goods, suppliers of services hiked prices and employee pay continued to rise.

Chris Williamson, chief business economist at IHS Markit, says about the slowing in UK business activity to a four-month low this month:

July saw the UK economy’s recent growth spurt stifled by the rising wave of virus infections, which subdued customer demand, disrupted supply chains and caused widespread staff shortages, and also cast a darkening shadow over the outlook. “Although business activity continued to grow, aided by the easing of lockdown restrictions to the lowest since the pandemic began, the rate of expansion slowed sharply to the weakest since March.

Transport, hospitality and other consumer-facing services companies were the hardest hit, though manufacturing also saw growth weaken markedly during the month.

Although the July flash survey only covered three days of the full easing of covid restrictions, any imminent re-acceleration of growth in August looks unlikely due to a steep slowing in overall new order growth recorded during July.

A limited number of critical workers will be allowed to avoid self-isolation, as supermarket shelves empty raising fears of food shortages, while other areas including hospitals and transport have also been hit, report Richard Partington, Jessica Elgot and Sarah Butler.

Workers from 16 key sectors including health, transport and energy will not have to isolate after being pinged by the NHS Covid app, as it was revealed that more than 600,000 people in England and Wales were sent self-isolation alerts last week.

As panicked shoppers shared images of empty shelves blamed on a shortage of workers, the government also announced on Thursday night that a pilot daily testing programme will be expanded to up to 500 food and drink supply chain employers – though retail staff in supermarkets will not qualify.

Here is an overview of how the pingdemic has affected staffing and services across various sectors:

As IHS Markit explains:

Where growth was reported, this was attributed to looser pandemic restrictions, a boost to consumer spending from staycations, rising demand for business services, and strong order books in the manufacturing sector. Those signalling a drop in output mostly commented on severe shortages of raw materials and the impact of Covid-19 isolation on staff availability (some also cited extended absences as employees took up unused holidays).

Bert Colijn, senior eurozone economist at ING, says:

Better than expected PMIs confirm the strong rebound expected for the third quarter, as reopening services make up for the slight decline in manufacturing output due to supply chain problems. Inflation pressures persist, forcing a dovish European Central Bank to remain on its toes for the autumn meeting.

The PMIs once again confirm significant pipeline inflation pressures, especially for goods. Of course, the ECB will consider this transitory as it has said before but expect the debate to become more heated in the months ahead when a decision needs to be made about the end of the PEPP [asset purchase] programme.

James Smith, developed markets economist at ING, says “the UK retail sector is in fairly good health, all things considered”.

Sales are 9% above pre-virus levels, though June saw spending dip on non-essentials. We suspect this reflects a switch in consumer priorities as services reopen... The outlook for retailers is best described as ‘solid but unexciting’.

Further gains in sales may be trickier to achieve, despite a recovery in consumer confidence and the large pool of involuntary savings. The latter, it’s worth remembering, is more heavily concentrated among higher earners who are less likely to spend the lockdown savings. Meanwhile, lower-income earners, who are more likely to have seen savings fall through the pandemic, will be disproportionately hit by the rise in inflation and are more exposed to possible redundancies as the furlough scheme comes to an end in the autumn.

In short, while consumer spending as a whole will help drive GDP fairly close to pre-virus levels by the end of the year, it’s likely that many of the marginal gains from now on will be found in services as opposed to retail.

By value, and excluding automative fuel, retail sales were up 12.1% compared with February 2020, the last normal month before the coronavirus pandemic started.

Lisa Hooker, consumer markets leader at the consultancy PwC, says:

Headline growth masks declines in other non-food categories, with household goods sales suffering their first non-lockdown driven decline since the start of the pandemic, as people started to spend more time out of the home; and sales in the hardest-hit clothing category again slipping below pre-pandemic levels.

So the post-pandemic retail recovery will likely remain fragile for the rest of the summer, as government support schemes begin to wind down, and the booming grocery sector sees operational and supply challenges from the current ‘pingdemic’.

And while the summer heatwave may still be on the mind of consumers, retailers will already be well into their planning for the rest of the year, including the critical Christmas peak. They will be hoping the initial post-lockdown momentum and pent-up demand continues for the rest of 2021.

Suren Thiru, head of economics at the British Chambers of Commerce, tweeted:

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, has looked at the outlook for UK retail sales and strikes a pessimistic note.

Retail sales probably will fall back over the coming months.

The temporary boost to food spending from Euro 2020 will fade, while higher confidence does not appear to be translating to higher levels of economic activity, due to the recent rise in Covid-19 cases. Indeed, footfall at retail locations has trended down recently and last week was 75% of its level two years ago, down from the peak of 86% in the first week of June, according to Springboard.

Similarly, credit and debit card payments settled through the CHAPS system were 4.2% below their February 2020 level in the first 15 days of July, worse than the 2.3% shortfall seen in the first 15 days of June.

Meanwhile, the combination of a further rise in CPI inflation, a decline in the value of Universal Credit payments at the end of September and a fall in employment in Q4 after the furlough scheme has been wound down will weigh on confidence and real disposable incomes.