The recovery is being crippled by the “pingdemic” as experts put the cost of the economic damage from millions of self-isolating workers at almost £5bn.
Private sector firms suffered their slowest growth since the economy began unlocking in April as a surge in self-isolating staff worsened existing recruitment difficulties and labour shortages, financial data firm IHS Markit said.
More than 600,000 staff have been “pinged” by the NHS Trace and Trace app in the past week, disrupting businesses and hitting orders.
Despite Downing Street’s insistence that the app is “doing its job”, food industry workers have now been included in a “test and release” scheme to prevent critical infrastructure failing.
The IHS activity survey, in which a score over 50 signals growth, slowed to 57.7 in July – the weakest since the economy was in lockdown during March.
It warned: “Those signalling a drop in output mostly commented on severe shortages of raw materials and the impact of Covid isolation on staff availability.”
Duncan Brock, director at the Chartered Institute of Purchasing and Supply, added: “Shortages of labour availability were made worse as many staff self-isolated, took other job opportunities or caught up on annual leave entitlements.”
It came as the Centre for Economics and Business Research said the cost of the “pings” could reach £4.6bn if there was no change to the self-isolation policy, which ends on August 16.
The forecaster warned that 7.6m people – about a quarter of the entire workforce – could be pinged over the next four weeks, of which 3.6m would be unable to work from home.
Karl Thompson, a CEBR economist, said: “Whilst these estimates do not consider that individuals may be deleting or ignoring their NHS Covid app, the cries of business owners across the UK are becoming louder, indicating a significant problem with the ping system in its current form.”
Business confidence is also at its lowest ebb for nine months and cost pressures also rose at the fastest pace in the 23-year history of the IHS survey. Its chief business economist, Chris Williamson, warned “any imminent re-acceleration of growth in August looks unlikely”.
The concerns overshadowed a boost to retail from Euro 2020 as fans stocked up on food and drink for the football.
Total volumes rose 0.5pc on the month with food stores reporting a 4.2pc jump, according to the Office for National Statistics. It means overall retail sales are up by almost 10pc on June 2020, and are 9.4pc higher than in February 2020, just before Covid struck.
This appears to be translating into higher sales on the high street. Online retail’s share of purchases fell from more than a third at the peak of the latest lockdown to just over one-quarter now, indicating shoppers are returning to physical stores.
However there are signs that some pent up demand from lockdown is fading.
Clothes sales returned to pre-pandemic levels on reopening in April and May but were back down in June.
Household goods sales also slowed last month, though they remain stronger than pre-2020 levels as more time spent indoors has bolstered demand for home improvements.