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By David Milliken
LONDON (Reuters) - British private-sector growth slowed sharply last month due to supply-chain bottlenecks and high worker absences prompted by COVID-19 isolation requirements, a closely watched survey indicated on Wednesday.
Price pressures rose by the most since the survey began 25 years ago - a concern for the Bank of England as it finalises new inflation forecasts due on Thursday. To date, the BoE has said higher inflation will be temporary.
The IHS Markit/CIPS services Purchasing Managers' Index (PMI) sank to 59.6 in July, its lowest reading since March, from 62.4 in June. The broader composite PMI, which includes Tuesday's manufacturing PMI data, showed a similar drop, to 59.2 from 62.2.
"More businesses are experiencing growth constraints from supply shortages of labour and materials, while on the demand side we've already seen the peak phase of pent-up consumer spending," said IHS Markit's economics director, Tim Moore.
July's final PMI readings were well above preliminary "flash" data, however. IHS Markit said this reflected a boost to services businesses from the lifting of most remaining COVID-19 restrictions in England on July 19.
Britain's economy is rebounding fast after suffering its biggest fall in output in more than 300 years in 2020, but most economists think the fastest growth probably came in the three months to June, when COVID rules eased most.
Service businesses were hit last month by a "pingdemic" of hundreds of thousands of workers having to self-isolate for up to 10 days after being identified by a government smartphone app as a close contact of someone who had tested positive for coronavirus.
The daily number of new COVID-19 cases has now fallen by more than half since a peak on July 17 - just before social-distancing rules eased in England - and the government will relax self-isolation requirements from Aug. 16.
Even so, many businesses are finding it hard to recruit staff. Employment growth in the survey slowed to its weakest in three months, while service exports continue to be hampered by COVID-related travel restrictions.
Wage costs, higher fuel prices and transport were the biggest factors pushing up costs in the service sector, where managers reported raising prices by the most since July 1996.
(Reporting by David Milliken; Editing by Kevin Liffey)