David Milliken

LONDON (Reuters – Britain’s service sector grew faster than anticipated last month following a huge hit from Omicron Wave of COVID-19 case. However, record prices are expected to alarm Bank of England which will likely raise interest rates on Thursday.

In January, the IHS Markit/CIPS purchasing manager’s index (PMI), rose to 54.1 from December’s low of 53.6 in December – in stark contrast to an earlier flash estimation based only on data from half of January that showed it down to 53.3.

Tim Moore, IHS Markit’s economics director, stated that demand has begun to rebound from Omicron restrictions. Most businesses anticipate only a temporary slowdown due to cancelled bookings or staff absences around the new year.

The Christmas and New year period saw a decline in the sales of hospitality firms.

The broader composite PMI, which includes Tuesday’s stronger-than-expected manufacturing PMI, rose to 54.2 in January from 53.6.

Over 50 percent of respondents reported that they had experienced growth. However, many economists believe Britain’s economy may have suffered a slight dip in January and December due to a reduction in socialising and the absence of staff from COVID.

The PMI showed that companies were optimistic about 2022.

Moore explained that “Growth Expectations for the Next 12 Months Picked Up in January” and is now at its highest point since last spring. Staff recruitment issues are often the biggest source of anxiety.

According to official data, there was a record number job openings in the last quarter of 2021. The shortage of workers is more than half the level before the pandemic.

The second-fastest increase in costs for services companies was recorded in January. It was driven by higher wages, increased energy costs, and greater raw material costs. All of these costs were passed onto customers. The highest price increases since July 1996, when the PMI series was launched.

This will fuel the BoE’s concerns that rising consumer prices inflation (which reached its highest level in almost 30 years in December at 5.4%) will slow down even after immediate drivers like energy cost increases stop increasing, has been exacerbated.

In its surveys, the BoE saw signs suggesting that business might hike pay to meet its inflation target of 2% this year.

However, most of the pay settlements reached so far have been well below inflation rate – which means that workers will see real-terms wage cuts. Many economists believe this will lead to slower growth and lower inflation.