Britain’s already flagging recovery has been dealt a fresh blow by the arrival of the Omicron Covid variant and is in its weakest state since the country was in full lockdown last winter, a report has shown.
Adding to pressure on the government to come to the aid of sectors especially hard hit by the pandemic, the monthly flash estimate of activity highlighted the economic damage caused by the new variant in December.
A tightening of restrictions under the government’s “plan B” and a more cautious approach by consumers combined to push the economy close to stalling, with the service sector particularly affected.
The closely watched report compiled by IHS Markit and the Chartered Institute of Procurement & Supply (Cips) provided an early guide to how the economy has been performing in recent weeks, and added to concerns that the UK faces a period of weak growth and rising inflation.
The release of the December composite purchasing managers’ index (PMI) came shortly before the Bank of England stunned the financial markets by raising interest rates for the first time in more than three years.
Despite acknowledging the risks posed by Omicron, the Bank’s nine-member monetary policy committee decided it could not ignore inflation of more than 5% and raised the official cost of borrowing from 0.1% to 0.25%.
Britain’s economy rebounded rapidly in the spring and early summer from last winter’s lockdown but the pace of recovery has slowed in recent months, and in October – the last month for which official growth figures are available – it expanded by just 0.1%.
According to IHS Markit/Cips, the measure for economic output on the PMI fell from 57.6 in November to 53.2 in December. A figure above 50 suggests the economy is growing rather than contracting. There was a slight pickup in manufacturing, where inflationary pressure abated, only partly compensating for the damage caused to the service sector by Omicron.
Adam Hoyes, a UK economist at Capital Economics, said: “The fall in the composite PMI in December doesn’t come as much of a surprise given the recent rise in cases of the Omicron variant … But it was much bigger than expected, and shows that caution among businesses and consumers is starting to weigh on activity, particularly in the services sector.”
Separate figures from the Office for National Statistics also showed a slowdown in activity under way, with an increasing number of businesses pessimistic about being able to survive the winter.
In its weekly digest of the latest available information, the ONS said there had been a fall in credit and debit card usage, a small decline in high street footfall and a drop in the number of seated diners in restaurants to the lowest level since lockdown restrictions were first eased in May.
Meanwhile, 7% of businesses said they had low or no confidence that they would be able to stay open in the next three months, up from 4% in October.
The ONS said because the government’s plan B restrictions only came into force on Monday, they would have had only a limited impact on the latest week’s figures.
Chris Williamson, the chief business economist at IHS Markit, said: “With Covid-19 infections set to rise further in coming weeks due to the spread of the Omicron variant, and more restrictions being introduced, the pace of economic growth looks likely to continue to weaken as we head into 2022.
“The bigger uncertainty will be on how rising infection rates both at home and abroad might cause further supply and labour shortages, and whether this means the easing of inflationary pressures seen in December proves frustratingly short-lived.”
