PMI: Omicron curbs on daily life wreak havoc on UK economy

Strict restrictions on Brits’ daily lives are wreaking havoc on the UK economy, reveals a closely watched survey released this morning.

The flash purchasing managers’ index (PMI), a timely indicator of the health of the British economy, plummeted to 53.2 in December, a 10-month low and down from 57.6 in November, according to IHS Markit and the Chartered Institute of Procurement and Supply.

The steep drop was driven by the British services industry being whacked by “tighter pandemic restrictions and renewed business uncertainty,” IHS Markit said.

The services PMI dipped to 53.2 in December, down from 58.5 in November.

Greater reticence to socialise in a bid to avoid catching the Omicron strain, compounded by city workers pouring out of centres after the government advised Brits to start working from home again has severely hit demand for consumer-facing activities.

Chris Williamson, chief business economist at IHS Markit, said the PMI underlines “the UK economy being hit once again by Covid 19, with growth slowing sharply at the end of the year led by a steep drop in spending on services by households.”

A malfunctioning services industry will weigh heavily on the UK economy. 

The industry generates around 80 per cent of output, indicating the economy could be headed back into contraction this month and the early stages of next year, analysts warned.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Near-real-time indicators have also weakened over the past two weeks, particularly in the consumer services sector.”

“It’s looking highly likely, then, that GDP will drop in December and January, driven by declines in consumer services activity,” he added.

The latest PMI comes as hospitality chiefs plead with the government to urgently intervene and provide support for the industry so they can cope with the sharp demand shock.

“We desperately need support if we are to survive this latest set of restrictions and urge the Government to stand behind our industry,” said Kate Nicholls, chief executive of UKHospitality.

“That means full business rates relief, grants, rent protection and extended VAT reductions. Anything less would prove catastrophic,” she added. 

IHS Markit’s latest survey did indicate shortages that have plagued the UK manufacturing industry are starting to recede.

However, a ratcheting up in Covid-19 cases could intensify supply and demand imbalances, especially if the next wave leads to a rise in labour shortages caused by people isolating, warned Martin Beck, chief economic advisor to the EY Item Club.