Omicron knocks UK and eurozone growth to 11-month lows; banknote maker De La Rue warns on

The Omicron variant has dragged UK company growth to its slowest since the lockdowns nearly a year ago.

British business activity cooled to an 11-month low in January, led by a slowdown in the services sector, a closely-watched survey of UK purchasing managers from IHS Markit shows.

Customer-facing parts of the economy were, understandably, worst hit by Omicron, as the UK experienced a “two-speed recovery in January”.

The service sector slowed for the third month running, with hospitality, leisure and travel all struggling due to the restrictions which were introduced last month, and which are now being eased.

Companies across the economy reported rising backlogs of work due to staff absences, as record numbers of Covid-19 infections led to more people off ill or isolating.

But there’s good news too — manufacturing output hit a five-month high, thanks to a “sustained turnaround in materials availability” which may show the supply chain crisis is finally easing.

Business confidence in the outlook also picked up, driving sustained solid jobs growth.

The IHS Markit/CIPS Composite PMI, which tracks activity in the economy, dipped in January to 53.4 from 53.6.

That’s the lowest in 11 months, and weaker than expected (economists forecast a rise to 55, which would have shown a pick-up). But it is higher than the eurozone’s composite PMI of 52.4 (see earlier post), suggesting the UK has started 2022 a little stronger.

Chris Williamson, chief business economist at IHS Markit, says there were wide variations across different sectors this month.

Consumer-facing businesses have been hit hard by Omicron and manufactures have reported a further worrying weakening of order book growth, but other business sectors have remained encouragingly robust.

Looking ahead, while the Omicron wave meant the hospitality sector has sunk into a third steep downturn, these restrictions are now easing, meaning this downturn should be brief. Many business and financial services companies have meanwhile been far less affected by Omicron, and saw business growth accelerate at the start of the year

With inflationary pressures remaining elevated at near-record levels, this all adds to the likelihood of the Bank of England hiking interest rates again at its upcoming meeting, he adds: