Hospitality firms saw Omicron hit in December as service sector growth slowed

Problems faced by the travel, leisure and hospitality businesses across the UK deepened last month, according to a respected monthly survey.

Growth in the service sector slowed to its lowest point since February, as the Omicron variant of Covid-19 surged through the country in December.

The UK beat its previous record for reported daily coronavirus cases during the month and many people stayed at home in the run-up to Christmas, a vital period for the hospitality industry.

Pubs and restaurants that would normally be hosting family meals, office Christmas parties and get-togethers instead faced a raft of cancellations.

The closely watched IHS Markit/CIPS UK Services PMI survey was 53.6 last month, from 58.5 in November.

Any score above 50 represents growth, so the sector is growing, but at its weakest rate in the 10 months since the economy started to reopen after the winter lockdowns.

However, analysts had expected December’s score would be 0.4 points worse, according to an average compiled by Pantheon Macroeconomics.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS) said: “Uncertainty and volatility in the services sector returned at the end of last year with a sudden drop in demand, and overall activity growth was the lowest since February 2021.

“This not-unexpected turn of events was the direct result of increased pandemic restrictions as the number of festive activities were reduced by Covid-concerned consumers.”

One silver lining for the sector was that businesses were put under a lot less strain last month.

Many had been struggling to keep up with spiking demand for most of the last year, but backlogs of work grew by their lowest amount since March, the survey showed.

However, companies are still facing pressures from staff absences and supply shortages, and costs are rising, although they slowed from November’s record high.

Businesses were generally positive as they kicked off the new year, with around 55% expecting a bump in activity in 2022, and just 10% believing it will decline.

Tim Moore, economics director at IHS Markit, said: “Despite concerns that economic growth has weakened as we head into the new year, service providers signalled strong confidence about the longer-term business outlook.

“The degree of optimism has held steady since the autumn, suggesting that most businesses are forecasting only a temporary hit to demand from the Omicron variant.”