Business confidence suffered a sharp blow when Omicron spread rapidly across the UK at the end of last year, according to a study by the Bank of England.
Sales in the first three months of 2022 are now expected to be 7.4 percent lower than forecast due to the impact of the new coronavirus variant, the central bank’s survey found among nearly 3,000 chief financial officers.
Companies also expected the increase in infections to lead to a 10 percent cut in investment, while their recruitment plans were likely to be 4.4 percent short, according to the BoE’s monthly decision-making panel survey.
The responses showed a marked decline across all benchmarks tracked by the survey, with declines of up to 8 percentage points in expectations compared to November.
The survey, conducted between December 3 and 17, also found 63 percent of businesses report that it is “much harder” than normal to recruit employees, with a further 23 percent finding it “a little harder”. to get staff.
A similar pessimistic view was evident for the last quarter of 2021, supportive increasing evidence that the British economy in December suffered a significant blow from the increase in Covid-19 cases due to staff absenteeism and a decrease in consumption.
Gabriella Dickens, an economist at Pantheon Macroeconomics, said the available data indicated “the rise of the Omicron variant [had] in recent weeks has weighed on consumer services spending ”. She expected a 0.6 percent drop in GDP in December and a further 0.3 percent drop in January.
The BoE survey found that the hospitality and transportation sectors were most affected, and both reported an 11 percent hit to sales expectations in the first quarter of this year due to Covid. The transportation sector also reported a 35 percent hit against its investment expectations over the same period.
Businesses that reported recruitment problems last month also experienced higher staff absenteeism rates, potentially contributing to labor supply pressures. The proportion of workers unable to work due to factors such as illness, self-isolation and childcare rose to 4 percent in December, the highest level since the start of the pandemic.
The results are in line with the final reading on Thursday of the IHS Markit / Cips Services Purchasing Manager’s survey, which fell to 53.6 in December – from 58.5 the previous month – to its lowest level since February.
Tim Moore, economic director at IHS Markit, said the survey indicated “a serious loss of momentum for the UK economy … as many customer-oriented businesses experienced a decline in demand due to increasing Covid-19 cases. ”
The IHS survey also found that transport and hospitality businesses were hit hard as they reported overwhelmingly a sharp drop in activity due to stricter pandemic restrictions and canceled events in the run-up to Christmas.
Amy Baker, hairdresser and owner of Wisbech-based beauty center, said that “cancellations on the spur of the moment, or no-shows, were plentiful during December. “The moment Omicron struck, people stopped going out and therefore did not need to get a haircut or makeover.”
Despite the bleak picture, Dickens said there is still a possibility that economic performance at the beginning of 2021 could exceed gloomy expectations, given early evidence that Omicron is leading to milder disease than the previous Delta variant.
“We can not rule out a rise in GDP in January if consumers feel more confident about running the risk of contracting Covid-19 now that Christmas is out of the way and people know that Omicron is less likely to cause serious illnesses than Delta, “Dickens said.