UK private sector growth slows as Omicron hits consumer services spending

·Business reporter
·3 min read
MANCHESTER, UNITED KINGDOM - SEPTEMBER 10: A barista serves a take away coffee on September 10, 2021 in Manchester, United Kingdom. Hospitality sector businesses across England are recovering from the twin disruptions of Covid-19 and Brexit. (Photo by Christopher Furlong/Getty Images)
The slowdown was centred on the service sector, which more than offset a modest increase in manufacturing production at the end of the year. Photo: Christopher Furlong/Getty Images

Private sector growth in the UK slowed sharply to a 10-month low in December amid tighter coronavirus pandemic restrictions and increasing business uncertainty.

According to new data compiled by IHS Markit and CIPS, its preliminary “flash” survey of purchasing managers fell to 53.2 during the month, down from 57.6 in November.

Although any reading above 50 indicates growth, this was much weaker than expected, and the worst month for the UK economy since February this year.

The index has registered in growth territory during each month since lockdown measures were lifted in March, but the latest reading was the weakest during this period.

A Reuters poll of economists had pointed to a much stronger reading of 56.4.

The flash survey of purchasing managers fell to 53.2 in December, from 57.6 the previous month. Chart: IHS Markit, CIPS, ONS
The flash survey of purchasing managers fell to 53.2 in December, from 57.6 the previous month. Chart: IHS Markit, CIPS, ONS

The slowdown was centred on the service sector, which more than offset a modest increase in manufacturing production at the end of the year. Survey respondents cited a negative impact on consumer demand from tighter COVID-19 measures and renewed travel restrictions.

There were also reports that business uncertainty related to the Omicron variant had led to a reluctance among people to spend.

Manufacturing output, which stood at 53.3, remained constrained by raw material and staff shortages in December, but only a small minority of survey respondents cited tighter pandemic restrictions.

Export orders also fell during the period. "Brexit-related trade difficulties featured prominently in the comments from survey respondents that saw a drop in export sales during December," IHS Markit said on Thursday.

Read more: Boohoo shares sinks 15% as supply chain crisis hits sales

Meanwhile, optimism regarding the year-ahead outlook for business activity eased for the fourth consecutive month, hitting a 14-month low. This largely reflected a slump in confidence among consumer-facing service providers.

Private sector growth expectations for the next 12 months are now the lowest since October 2020, and are considerably weaker than seen during the early stages of the vaccine rollout.

The December data also indicated another strong rise in private sector employment. However, weaker rates of output and new business growth meant that the pace of job creation edged down to its lowest since April. 

Pressure on business capacity meanwhile eased considerably, as signalled by the smallest rise in backlogs of work for nine months.

“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,” Chris Williamson, chief business economist at IHS Markit, said.

“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.”

Watch: What is inflation and why is it important?

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting