By David Milliken
LONDON (Reuters) – Britain’s services sector grew in December at the slowest pace since the country was last in lockdown, as the spread of the Omicron variant of coronavirus hammered hospitality and travel, a survey showed on Thursday.
The IHS Markit/CIPS services Purchasing Managers’ Index (PMI) 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 ‘flash’ reading of 53.2.
The composite PMI, which includes Tuesday’s more upbeat manufacturing PMI, showed a similar move.
“Mass cancellations of bookings in response to the Omicron variant led to a slump in consumer spending on travel, leisure and entertainment,” IHS Markit economist Tim Moore said.
The last time the index was lower was in February 2020 when the economy was still under lockdown, 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 curbs on hospitality apply elsewhere in the United Kingdom.
Many Britons have also followed health advice to limit social gatherings, and the PMI survey showed a slowdown in the growth of business services on top of the much bigger fall in demand for face-to-face consumer services.
Services businesses were more upbeat for 2022 as a whole, however, with 55% expecting output to rise compared with 10% predicting a decline, IHS Markit said.
But many economists expect a big squeeze on consumer demand this year from sharply rising inflation, which the Bank of England forecasts will peak at a 30-year high of around 6% in April, just as the government raises taxes on workers.
The BoE also started last month to raise interest rates from their record-low 0.1% to tackle longer-term price pressures.
“Many businesses cited the need to pass on escalating costs to clients over the course of 2022,” Moore said, adding that firms faced pressure to raise pay in a competitive job market.
Both the ‘prices charged’ and the input costs components of the services PMI in December were well above their levels at the start of 2021, although down from peaks a few months earlier.
(Reporting by David Milliken; Editing by Toby Chopra)
