The UK economy grew at its slowest pace in almost a year in January, as consumer-facing service companies lost momentum following the rise of the Omicron variant of coronavirus.
The IHS Markit and Chartered Institute of Procurement and Supply (CIPS) purchasing managers’ index (PMI) declined from 53.6 in December to 53.4 in January – its lowest level in 11 months, reports the Guardian.
Any finding above 50 denotes that the economy is expanding rather than contracting. January’s score, however, is under the prediction of 55 that a poll of economists had expected.
The survey leaves the Bank of England on track to raise interest rates next week, Reuters reports.
The PMI reading suggests a similar level of economic performance between Britain, Germany and France, the three largest European economies.
“All told, this PMI survey suggests that the (UK) economy is suffering a hangover from the surge in Omicron cases. Even so, we still think GDP will recover fairly swiftly over the rest of Q1,” said Adam Hoyes, economist from consultancy Capital Economics.
Supply chain easing
Lloyds Bank’s ‘UK Recovery Tracker’ confirmed that Omicron stalled the growth of consumer-facing businesses in December, but also found that manufacturers were beginning to benefit from easing supply chain pressures.
The tourism and recreation sector – which includes pubs, hotels, restaurants and leisure facilities – contracted for the first time in nine months in December (43.2).
In contrast, three of the manufacturing sectors monitored registered a stronger month-on-month performance.
This included manufacturers of household products, which saw output growth accelerate to the fastest rate since June 2021 (56.7 in December versus 52.2 in November), manufacturers of technology equipment (60.1 vs 53.1) and industrial goods (52.2 vs 50.0)
The number of firms reporting an inability to meet demand due to staff or material shortages continued to ease from its peak in September 2021 but remained above the long-term average.
Jeavon Lolay, head of economics and market insight at Lloyds Bank Commercial Banking, said:
“While consumer-facing businesses, like those in travel and hospitality, unsurprisingly bore the brunt of consumer concern over the Omicron variant in December, the resilience shown in other service sectors and manufacturing helped soften the impact on the economy as a whole.”