Omicron variant hits UK services growth in December

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Omicron variant hits UK services growth in December

LONDON, Jan 6 Reuters -- Britain's services sector grew at the slowest pace since the country was last in lockdown, as the Omicron variant of coronaviruses hammered hospitality and travel, a survey showed on Thursday.

The PMI of IHS Markit CIPS services fell to a 10 month low of 53.6 in December from 58.5 in November, according to final data, which was a fraction stronger than a preliminary reading of 53.2.

The composite PMI, including Tuesday's more optimistic manufacturing PMI, showed a similar move.

Tim Moore, the economist for IHS Markit, said that mass cancellations of bookings in response to the Omicron variant resulted in a slump in consumer spending on travel, leisure and entertainment.

The last time the index was lower was in February 2020 when the economy was still under lock down, and restaurants and non-essential shops were closed to the public, but December's data was above the 50 mark that separates growth and contraction.

Unlike during the wave of COVID 19 cases last winter - when few Britons had been vaccinated - this year Prime Minister Boris Johnson has rejected new legal restrictions in England, although restrictions on hospitality apply elsewhere in the United Kingdom.

Many Britons have followed health advice to limit social gatherings, and the PMI survey showed a slowdown in business services growth due to the fall in demand for face-to- face consumer services.

As a whole, services businesses were more positive for 2022, with 55% expecting output to increase, compared to 10% expecting a decline, according to IHS Markit.

The Bank of England forecasts that consumer demand will peak this year due to rising inflation, which will peak at a 30 year high of around 6% in April, as the government raises taxes on workers.

The BoE started last month to raise their interest rates from their record low of 0.1% to tackle longer-term price pressures.

Moore said that firms faced pressure to raise pay in a competitive job market because of the need to pass on escalating costs to clients over the course of 2022.

The 'prices charged' and input costs components of the PMI were well above their levels at the beginning of 2021, although they were down from peaks a few months earlier in the year.