The economy is facing its bleakest month since the depths of last winter’s lockdown after pandemic restrictions crushed consumer confidence.
The IHS Markit/CIPS flash composite purchasing managers’ index (PMI), which measures activity in the manufacturing and services sectors, slumped to its lowest level since February. Hospitality and travel companies bore the brunt of the slide in consumer demand and businesses are now more pessimistic about the future than at any time since October last year.
The “flash” PMI dropped to 53.2 in December, from 57.6 last month, which still indicates that the economy will expand but the reading was the weakest since the government eased some of the 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 findings will have complicated the Bank of England’s decision on interest rates. Policymakers received the PMI survey before their meeting this morning.
Inflation has soared around the world this year because of higher energy and raw material prices and disruptions to supply chains. Post-Brexit trade and migration barriers, however, have added fuel to Britain’s soaring inflation rate, which hit a ten-year high of 5.1 per cent last month.
The PMI report suggests that the economy sustained a heavy blow after the emergence of the Omicron variant late last month. Consumer demand had begun falling even before the government introduced more safeguards to slow the advance of the more transmissible variant.
“Activity fell sharply in the hotels, restaurants, travel and transport sectors and ground to a halt in other consumer-facing businesses,” Chris Williamson, chief business economist at IHS Markit, said. “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 a 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.
The manufacturing sector was a bright spot in the economy. The factory PMI’s output index rose to 53.3 in December from 52.7 in November, a four-month high, after firms reported an easing in the supply chain disruptions that have held them back for more than a year. Export orders have fallen again, however, as companies counted the cost of the thickets of red tape that have come into place after Britain’s departure from the European Union.
“Brexit-related trade difficulties featured prominently in the comments from survey respondents that saw a drop in export sales during December,” IHS Markit said.