Coronavirus spreads, sending UK growth to 10 month low

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Coronavirus spreads, sending UK growth to 10 month low

LONDON, Dec 16 Reuters - The spread of the Omicron variant of coronavirus has hammered British hospitality and travel companies this month, sending private sector growth to a 10 month low, a survey showed ahead of Thursday's Bank of England policy announcement.

The preliminary IHS Markit CIPS UK Composite Purchasing Managers' Index PMI sank to 53.2 in December from 57.6 in November.

A Reuters poll of economists pointed out a much stronger reading of 56.4, while still above the 50 dividing line between growth and contraction.

The survey showed slower growth in new orders and price pressures - something that will have been noted by the BoE's rate-setters who had access to the PMI in advance of their December policy decision, due to be announced at 1200 GMT.

Inflation has gone up this year due to higher energy prices and COVID-related supply-chain bottlenecks. The problems have been added to by post-Brexit trade and migration barriers in Britain.

The BoE held off on a widely anticipated move last month due to uncertainty about the end of the government's job furlough programme, and said interest rates will almost certainly have to rise to bring down inflation pressures.

The data showed no hit to the labour market but Thursday's PMI suggested that faltering economic growth caused by the Omicron variant and restrictions to slow its spread is now the main downside risk.

The hotel, restaurants, travel and transport sectors fell sharply in the past, and ground to a halt in other consumer-facing businesses, said Chris Williamson, chief business economist at IHS Markit.

As we head into 2022, the rate of economic growth is likely to continue to weaken. The PMI for services sector fell sharply to 53.2 in December from 58.5 in November, reaching its lowest level since February and is below all forecasts in the Reuters poll that had pointed to a reading of 57.0.

Concerns about the prolonged pandemic restrictions and the subsequent hit to business and consumer confidence had a negative impact on growth expectations for 2022, according to IHS Markit.

The manufacturers have fared better this month.

The output index of the factory PMI rose to 53.3 in December from 52.7 in November, a four-month high, thanks to an easing of supply chain problems that have persisted for more than a year.

Export orders have fallen again.

IHS Markit said that trade difficulties relating to Brexit were prominent in the comments from survey respondents that saw a drop in export sales during December.