Growth in UK services slumped in December as the Omicron variant resulted in a drop in consumer spending, escalating business uncertainty and staff absences.
Travel, leisure and hospitality businesses overwhelmingly report a fall in activity due to tighter pandemic restrictions and cancelled events during the festive period.
The IHS Markit/CIPS UK Services Purchasing Managers’ Index dropped to 53.6 in December, down on 58.5 in November and the lowest since February 2021, but still indicating growth above the 50 neutral reading.
Survey respondents reported subdued demand for consumer services and a reluctance to spend among businesses, while export orders declined for the first time in six months, largely due to renewed travel restrictions.
Softer demand meant strains on business capacity were less marked but higher prices for energy, fuel, transport and raw materials led to another sharp increase in average cost burdens. However, the rate of input cost inflation eased from November’s record high, while the rate of increase in average prices charged by service companies slowed.
Duncan Brock, group director at CIPS, said: “Ongoing Brexit customs delays and supply shortages also added to depressed activity in the sector. Exports orders were also affected by reduced international travel with sales falling for the first time since June 2021.
“However, this did not deter businesses from strong levels of job creation and retaining hard-won staff in a challenging hiring environment. Service providers anticipate a short pause for the recovery and optimism remained strong with the expectation that customers would return in higher numbers in the coming months.”
Tim Moore, economics director at IHS Markit, described a “severe loss of momentum” in December. But he added: “The inflation outlook appeared to improve as input prices increased at the slowest pace for three months. Survey respondents again commented on considerable pressure from energy, fuel and staff costs.
“Output charge inflation eased only slightly from November's record high, however, as many businesses cited the need to pass on escalating costs to clients over the course of 2022.”
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