Yahoo Finance UK economy rebounds in January as Omicron disruption eases
The UK economy grew 0.8% month-on-month in January as the disruption caused from the Omicron wave of coronavirus started to fade.
This was a sharper rebound than expected, meaning the economy is now 0.8% bigger than its pre-pandemic peak.
It comes after output fell by 0.2% in December when Plan B restrictions were introduced to control the spread of the new variant.
The Office for National Statistics (ONS), which compiled the data, said on Friday that economic growth was felt across all sectors, with some industries that were hit particularly hard in December now performing well, including wholesaling, retailing, restaurants and takeaways.
Computing programming and film and television also had a good start to the year.
While supply chain issues persisted in certain sectors, output in both construction and manufacturing grew for the third month running.
The UK’s service sector is now 1.3% above its pre-pandemic level, while construction is 1.4% higher. But production is 2% lower.
Analysts believe that some of the rebound in activity may have flowed into February, although storm Eunice may have been a drag.
Barret Kupelian, senior economist at PwC, said: “The data showed there still is some fuel in the tank for a post-COVID bounce as the output for significant sectors of the economy including manufacturing, arts, entertainment and recreation and financial services continues to remain below pre-crisis levels.
"Assuming no supply-side constraints, the potential boost to GDP from recovery of these sectors could be in the region of around 1.4 percentage points."
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However, Russia’s invasion of Ukraine is clouding the outlook for the future, with oil and gas prices soaring, and an oncoming cost-of-living squeeze on households.
According to Suren Thiru at the British Chambers of Commerce (BCC), GDP could go into reverse with the combination of the war, inflation, rising interest rates and increased taxes, potentially causing a recession.
“The UK’s economy could stall in the near term as rising inflation, soaring energy bills and higher taxes increasingly drag on activity, despite a probable boost to output in February from the end of Plan B COVID restrictions,” he said.
“Russia’s invasion of Ukraine has increased the risk of a recession in the UK by exacerbating the already acute inflationary squeeze on consumers and businesses and derailing the supply of critical commodities to many sectors of the economy.”
The Bank of England is expected to raise interest rates again on Thursday for the third time since the pandemic.
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The International Monetary Fund is also likely to cut its global growth forecasts. Kristalina Georgieva, managing director, said on Thursday that the unprecedented sanctions imposed on Moscow are pushing the Russian economy into a deep recession.
The conflict is also causing spillovers globally, with rocketing commodity prices leading to higher inflation which hits incomes, and damages financial conditions and business confidence.
“So to sum it up, we have a tragic impact of the war on Ukraine. We have contractions on a significant basis in Russia. And we see the likely impact on our World Economic Outlook. We will come up with, next month, a downward revision of our growth projections,” she said.
“So we got through a crisis like no other with the pandemic. And we are now in an even more shocking territory. The unthinkable happened — we have a war in Europe.”
