PMIs: Businesses Look Past Omicron Hit with Optimism

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Staff absences due to the UK's fourth Covid wave meant businesses struggled in January, according to a regular monthly survey that also showed inflationary pressures continue to build.

The IHS Markit PMI survey for January showed that although all of the economy's major sectors recorded growth, there was a slowdown in activity.

All types of private sector businesses commented on capacity constraints and rising backlogs of work as a result of staff absences in January, said IHS Markit.

The Manufacturing PMI nevertheless still read at an impressive 56.9, although this is lower than the consensus expected at 57.7 and below December's 57.9.

Growth in the services sector was sluggish given heightened caution relating to the virus; the Services PMI read at 53.3, which is below the 53.9 expected by the market and lower than December's 57.9.

The Composite PMI - which balances the two readings in such a way as to give a more accurate representation of the wider economy - read at 53.4, lower than the 55.0 expected by the market and lower than December's 53.6.

IHS Markit says their data shows hospitality, leisure and travel all struggled due to Omicron restrictions, but this was offset by resilient growth in business and financial services.

But all sectors might have printed stronger readings were it not for the numbers of employees who had to take time off work having tested positive for the virus.

IHS Markit said strong inflationary pressures continued across the service sector at the start of 2022.

Both input costs and output charges increased at the second-fastest rate since the survey began in July 1996 (exceeded only by November 2021).

"Staff wages and energy price hikes made up the bulk of the extra burden and businesses will inevitably pass on these costs to consumers," says Duncan Brock, Group Director at CIPS, who sponsor the report.

The government has since lowered the self-isolation times and the virus is on the wane according to health data, suggesting February might see a more concerted bounce back in activity.

"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," says Chris Williamson, Chief Business Economist at IHS Markit.

IHS Markit said business expectations for the year ahead were upbeat in January and the degree of optimism rebounded to its strongest since August 2021.

This mainly reflected higher levels of positive sentiment in the service economy, said the report.

Survey respondents said looser pandemic restrictions and strong projections for customer demand had helped to boost business expectations in January.