- A decline in COVID-19 infections didn’t stop January’s flash services PMI falling to an 11-month low. The flash manufacturing index also fell, although this partly reflected a moderate easing in supply chain pressures.
- But both PMIs remaining in growth territory is consistent with a modest economic impact from Omicron. Meanwhile, evidence of still-elevated cost pressures will be noted by the Monetary Policy Committee (MPC) in advance of February’s meeting.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“COVID-19 infections peaked at the start of January and have been falling since, prompting the Government to announce that social distancing restrictions will be lifted on 27 January. But any boost to services activity and sentiment from these developments wasn’t evident in January’s flash services PMI. An index of 53.4 was slightly down from 53.6 in December and the lowest in 11 months. The IHS Markit/CIPS services survey reported the second highest rates of input cost and selling price inflation in the survey’s history.
“Some signs of an easing in supply chain pressures were present in January’s manufacturing survey. Input costs rose at the slowest rate since April and vendor delivery times lengthened to the shortest extent in over a year. The latter contributed to a decline in the flash manufacturing PMI, which fell to 56.9 from 57.9 a month earlier. But a fall in new orders growth to a 12-month low also played a role.
“That both PMIs remained in growth territory in January mean the EY ITEM Club is still confident that the economic impact from Omicron will be small and short-lived. But a decreasing drag on activity from COVID-19 will soon confront more serious headwinds from a looming rise in energy bills and a rise in taxes in April. Contrary effects on inflation and activity means the MPC faces a difficult and hard-to-call judgement when it meets in February.”