The latest experimental near real-time data from the ONS suggests that the economy won’t be hit as hard by omicron as was feared.
Undoubtedly, omicron has dampened economic activity. 45% of food and accommodation businesses said cancellations increased in December, and the number of people travelling by train in the last two weeks of December dropped significantly from the first two weeks. As a result, it seems pretty certain that GDP will have fallen in December.
However, not all the evidence points the same way. Spending on debit and credit cards was 10% higher this December than last, and at 53.6, the IHS/Markit composite PMI is still pointing to a slight increase in growth. What’s more, the number of businesses trading at full capacity again ticked up in December. Overall, we have pencilled in a 0.5% month-on-month drop in GDP in December.
The effect on activity in January is less clear. It’s quite possible that consumers will be more relaxed about going out now that vaccination rates are so high and omicron seems milder than previous strains of coronavirus. Indeed, the number of restaurant bookings so far in January has risen by 27% compared to the same time in 2020. And this economists attempts at booking dinner for the weekend suggest this trend will continue.
Admittedly, the winter will still be tough for most consumers. Energy prices have shot up again after dropping back the last quarter of 2021, and the government is holding firm on introducing big tax rises. Both of these factors will eat into consumers’ real disposable incomes. But if consumer confidence bounces back in January, then omicron may be just a blip on the economic charts and won’t derail our forecast of near 5% GDP growth in 2022.