The UK is seeing a two-speed recovery from Covid-19, a new report suggests.
Data compiled by IHS Markit and CIPS for the Purchasing Managers’ Index (PMI) shows that a further slowdown in the service sector held back the UK economy at the start of 2022.
The headline seasonally adjusted IHS Markit/CIPS Flash UK Composite Output Index remained above the no-change threshold of 50 in January, standing at 53.4. However, the index was down slightly from 53.6 in December and signalled the slowest rate of output expansion since the recovery from lockdown began last spring.
Hospitality, leisure and travel all struggled due to restrictions related to the Omicron variant, offsetting resilient growth in business and financial services. Manufacturers also outperformed service providers as a sustained turnaround in materials availability led to the fastest rise in production volumes for five months.
The report noted that all types of private sector businesses responding to the monthly survey commented on capacity constraints and rising backlogs of work as a result of staff absences in January.
Input cost inflation also remained high, reflecting stronger cost pressures in the service sector.
Chris Williamson, chief business economist at IHS Markit, said that with inflationary pressures remaining elevated at near-record levels, it adds to the likelihood of the Bank of England raising interest rates again at its upcoming meeting.
In December the Bank of England increased the base rate from the record low of 0.1% to 0.25% as the pace of price increases continued to accelerate.