The economy is facing its bleakest month since the depths of last winter's lockdown after consumer confidence was crushed by pandemic restrictions.
The PMI, the IHS Markit CIPS flash composite purchasing managers index, which measures activity in the manufacturing and services sectors, fell to its lowest level since February. Hospitality and travel companies have suffered the brunt of the slide in consumer demand and businesses are now more pessimistic about the future than any time since October last year.
The flash PMI dropped to 53.2 in December, down from 57.6 last month, which indicates that the economy will expand but the reading was the weakest since the government eased some Delta-wave restrictions in March and fell far short of the 56.4 forecast.
The survey showed slower growth in new orders and mounting inflationary pressures. The Bank of England's decision on interest rates will be complicated by the findings. The PMI survey was handed over to policymakers before their meeting this morning.
Inflation has soared this year because of higher energy and raw material prices and disruptions to supply chains. The post-Brexit trade and migration barriers have added fuel to Britain soaring inflation rate, which hit a ten-year high of 5.1 per cent last month.
The PMI report shows that the economy suffered a heavy blow after the emergence of the Omicron variant late last month. Consumer demand had started to fall before the government introduced more safeguards to slow the advance of the more transmissible variant.
In the hotels, restaurants, travel and transport sectors, activity fell sharply, and ground to a halt in other consumer-facing businesses, said Chris Williamson, chief business economist at IHS Markit. The pace of economic growth is likely to be weakened as we head into 2022. The PMI for services sector dropped sharply to 53.2 in December from 58.5 in November, reaching its lowest level since February and was below all forecasts in a Reuters poll that had pointed to a reading of 57.0.
The survey's optimism gauge hit a 14 month low. Concerns over 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 manufacturing sector was a bright spot in the economy. The output index of the factory PMI rose to 53.3 in December from 52.7 in November, a four-month high, after firms reported an easing of supply chain disruptions that have held them back for more than a year. Export orders fell again as companies counted the cost of the thickets of red tape that came into place after Britain left the European Union.
IHS Markit said that the survey respondents saw a drop in export sales during December because of Brexit-related trade difficulties.