Growth in UK economic activity drops to 10-month low, survey finds

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Growth in UK economic activity has slowed to its weakest pace since February as the spread of the Omicron coronavirus variant hits consumer demand for travel and hospitality, a key survey showed on Thursday.

The flash UK composite output index published by IHS Markit and the Chartered Institute of Procurement and Supply fell from 57.6 in November to 53.2 in December, dragged down by a sharp drop in service sector activity as new virus restrictions hit consumer confidence.

Business confidence in the economic outlook also sank for a fourth consecutive month, with expectations for growth in the year ahead now at their lowest since October 2020 — weaker than during the depths of the first quarter lockdown, when the vaccination drive was getting under way.

Chris Williamson, economist at IHS Markit, said there was a glimmer of good news from the manufacturing sector, where supply chain blockages had eased somewhat. However, the pace of growth was set to weaken heading into 2022, he added, with a “bigger uncertainty” over how far rising infection rates might exacerbate labour and supply shortages, renewing inflationary pressures.

Gabriella Dickens, at the consultancy Pantheon Macroeconomics, said the data were “the clearest sign yet that the Omicron variant has set back the economic recovery”.

Meanwhile, real time data showed the rapidly worsening outlook for the industries most directly affected by the surge in infections and the imposition of new restrictions.

Figures from OpenTable, the online booking site, showed the number of seated diners at UK restaurants in the week to December 14 was barely changed from its level two years ago — the weakest showing since the hospitality sector reopened in May — whereas it was 15 per cent above its 2019 level in the late November week before news of the Omicron variant emerged.

Some businesses suffering from a sudden stop in bookings may be ill-prepared to cope: an Office for National Statistics survey showed that 13 per cent of all businesses had no cash reserves in the week to December 12, the highest percentage reported since June 2020, with the proportion rising to almost one in five in the accommodation and food services sector.

There are also some signs of consumer spending starting to soften in the most exposed sectors.

Airline spending was 39 per cent lower in the week to December 12 than in the equivalent week of 2019, compared with a shortfall of 20 per cent the previous month, according to Fable Data, a company that tracks bank transactions. There was also a similar slump in broader spending on international travel and tourism, although there was not yet any major change in spending on eating out, or on public transport and fuel, despite the renewal of work from home guidance.

Paul Dales, at the consultancy Capital Economics, said that until the end of last week he had been predicting a drop of no more than 0.1 per cent in December’s gross domestic product due to Omicron — but that the rapid turn of events now made a fall of 0.5 to 1 per cent look likely.

If the UK entered lockdown in the new year, GDP could fall at least 3 per cent, he added — with a more severe, protracted decline possible if the government failed to step up fiscal support.



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