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Omicron fears set in at British firms as UK economy hurtles toward contraction

Sunak said: “We recognise that the spread of the Omicron variant means businesses in the hospitality and leisure sectors are facing huge uncertainty, at a crucial time.” Photographer: Chris J. Ratcliffe/Bloomberg via Getty Images

Omicron fears are embedding into British businesses in a sign that the UK economy is headed for a period of contraction, reveals a new study released today.

Business confidence dropped to 32 per cent in early December, down from 40 per cent in just a matter of days from late November, according to Lloyds Bank.

Intensifying uncertainty over the trajectory of the UK economy in the coming months due to the likelihood of the UK government tightening curbs on daily life ratcheting up to cool the spread of Omicron ignited the dip in confidence.

Several British media outlets reported yesterday Prime Minister Boris Johnson is set to re-launch the government’s step two in its roadmap that guided the country out of lockdown last year.

If triggered, indoor household mixing would be prohibited and pubs, bars and restaurants would be limited to serving customers outdoors.

There is concern over the scale of damage a return to step two would inflict on the British economy. Pantheon Macroeconomics, a consultancy, estimates output would drop two per cent.

Hann-Ju Ho, senior economist at Lloyds Bank, said:“It is a challenging end to 2021 as businesses are now having to adapt to the new Omicron variant and resultant restrictions across the UK.”

The potential reimposition of restrictions on economic activity adds to the list of headwinds troubling British firms.

Inflationary pressures have swelled over the course of 2021, squeezing margins and making profitability distant reality for many businesses.

Input prices are over 14 per cent higher than they were a year ago, according to the Office for National Statistics.

In a big to survive the inflation onslaught, 45 per cent of firms intend to hike price over the next 12 months, according to Lloyds. Price rises are most acute in the hospitality sector.

“Pay expectations continue to show strength, reaching new highs of 48 per cent and 26 per cent for firms expecting average pay growth of 2 per cent and 3 per cent respectively,” Lloyds said.

More than one in 10 businesses anticipate hiking pay four per cent.