Growth in the UK service sector fell to its lowest level in 10 months as the emergence of the Omicron variant slowed the UK recovery.
December was the worst month for the UK services economy since February 2021, when the last lockdown, according to data firm IHS Markit.
Service companies suffered a sharp drop in spending on face-to-face consumer services, which heightened business uncertainty and disruption from staff absences as Covid-19 continued to hit the economy.
This brought the UK services PMI down to 53.6 in December, from 58.5 in November.
This shows the weakest growth since the lockdown rebound began last spring, as consumer cautiousness and tightening restrictions under the government’s “plan B” have slowed activity.
On a more positive note, job creation has remained relatively strong, cost pressures have eased from the November high, and output growth expectations have improved slightly.
But it’s clear the UK economy took a hit last month as Omicron hit hotel businesses and many office workers worked from home.
Tim moore, economic director of IHS Markit, said:
“Data for December revealed a serious loss of momentum for the UK economy, as many businesses with direct customer contact experienced a drop in demand due to escalating COVID-19 cases.
Total new orders in the service sector grew at the weakest pace in 10 months. Massive book cancellations in response to the Omicron variant have resulted in a drop in consumer spending on travel, recreation and entertainment. Survey respondents also noted that the renewal of restrictions related to the pandemic had slowed the recovery of business services.
Companies remain confident about the longer-term business outlook, with 55% of respondents expecting production to increase during the whole of 2022, while only 10% expect a decline.
But the costs continue to rise, which will hit consumers in the pocket this year:
“The outlook for inflation appeared to be improving as input prices rose at the slowest pace in three months. Survey respondents again commented on the considerable pressure exerted by energy, fuel and personnel costs.
Inflation in production costs has slowed down only slightly from November’s record, however, as many companies raised the need to pass escalating costs on to customers during 2022. ”