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 “flash” IHS Markit/CIPS U.K. Composite Purchasing Managers’ Index (PMI) sank to 53.2 in December from 57.6 in November.
While still above the 50 dividing line between growth and contraction, a Reuters poll of economists had pointed to a much stronger reading of 56.4.
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 soared globally this year due to higher energy prices and COVID-related supply-chain bottlenecks. In Britain, post-Brexit trade and migration barriers have added to the problems.
The BoE has said interest rates will almost certainly need to rise to bring down inflation pressures, but it held off on a widely expected move last month due to uncertainty about the impact of the end of the government’s job furlough program.
Data subsequently showed no hit to the labour market, but Thursday’s PMI suggested faltering economic growth caused by the Omicron variant and restrictions to slow its spread is now the main downside risk.
“Activity fell sharply in the hotels, restaurants, travel and transport sectors, and ground to a halt in other consumer-facing businesses,” said Chris Williamson, chief business economist at IHS Markit.
“The pace of economic growth looks likely to continue to weaken as we head into 2022.”
The PMI for the services sector fell sharply to 53.2 in December from 58.5 in November, reaching its lowest level since February and below all forecasts in the Reuters poll that had pointed to a reading of 57.0.
The survey’s gauge of optimism hit a 14-month low.
“Concerns about prolonged pandemic restrictions and the subsequent hit to business and consumer confidence had a negative influence on growth expectations for 2022,” IHS Markit said.
Manufacturers have fared better this month.
The factory PMI’s output index rose to 53.3 in December from 52.7 in November, a four-month high, thanks to an easing in supply chain problems that have persisted for more than a year.
Export orders have fallen again, however.
“Brexit-related trade difficulties featured prominently in the comments from survey respondents that saw a drop in export sales during December,” IHS Markit said.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.