UK economy bounces back from Omicron as more people dine out

Britain’s economy bounced back from the effects of the Omicron Covid variant at a faster pace than expected during January, as consumers returned to eating and drinking out in pubs and restaurants.

The Office for National Statistics (ONS) said all sectors of the economy returned to growth, helping to lift gross domestic product by 0.8% in January from a month earlier, fuelled by a rise in consumer-facing services.

GDP was estimated to be 0.8% above its pre-pandemic level, reflecting a weaker impact on the economy than expected after the emergence of the Omicron variant led to a sharp rise in coronavirus infections. City economists had forecast a slower growth rate of 0.2%.

However, experts warned the impact of Russia’s invasion of Ukraine would cut short the economic rebound as surging energy prices erode consumer spending power and discourage business investment.

“[It’s] as good as it gets for this year,” said Paul Dales, the chief UK economist at the consultancy Capital Economics. “The hit to households’ real disposable incomes from the surge in energy prices, the latest chunk of which is due to the war in Ukraine, and higher taxes will start to be felt from March and April. As such, GDP growth will probably slow throughout the year.”

According to the latest snapshot from the ONS, all sectors grew in January after a slowdown a month earlier, including wholesaling, retailing, restaurants and takeaways. Computer programming and film and television production also had a good start to the year.

The main driver of growth in January was wholesale trade, which was up 3.8%, amid a bounceback after weakness in December because of the impact of Omicron. Despite persistent supply chain issues in some sectors, output in both the construction industry and manufacturing grew for the third month running.

Reflecting the return of consumers to pubs and restaurants, activity in the food and drink sector rose by 6.8%, after a fall of 8.1% in December when Omicron led to a wave of cancelled bookings for Christmas parties and gatherings.

However, the figures come amid expectations that Vladimir Putin’s invasion of Ukraine will damage the global economic recovery from Covid-19.

Suren Thiru, the head of economics at the British Chambers of Commerce, said: “The figures have been pushed into the rear-view mirror by renewed domestic and global shocks, including Ukraine.

“The UK’s economy could stall in the near term as rising inflation, soaring energy bills and higher taxes increasingly drag on activity despite a probable boost to output in February from the end of plan B Covid restrictions.”

The government announced £9bn of support for households facing a record increase in their energy bills from April. However, pressure is mounting on Rishi Sunak to add to the package amid warnings of a further sharp rise in gas and electricity prices.

Frances O’Grady, the general secretary of the TUC, said the chancellor needed to use his spring statement on 23 March to outline fresh measures to support workers. “Without government action, families will get poorer, spending will fall, and our economy will run into trouble,” she said.

Sunak said the government had provided unprecedented support throughout the Covid-19 pandemic that had put the economy in a stronger position to deal with cost-of-living challenges.

“We know that Russia’s invasion of Ukraine is creating significant economic uncertainty and we will continue to monitor its impact on the UK, but it is vital that we stand with the people of Ukraine to uphold our shared values of freedom and democracy and ensure Putin fails,” he said.