The hit to UK GDP from Omicron is likely to be much smaller than previous Covid waves and the economy will bounce back quickly after a 0.6% m/m drop in December. While economically meaningful restrictions were few, activity fell due to voluntary social distancing and the disruption to labour supply from large numbers of workers isolating.
What you will learn:
- Output is likely to remain subdued in January but should then rebound rapidly as the Omicron wave ebbs. Still, our new forecast estimates GDP growing by just 4.4% in 2022, down from 5.7% two months ago.
- Nevertheless, a number of high-frequency sources report a marked drop in social consumption activity in December. Most notably, CHAPS data showed a 20ppt decline in debit and credit card spending on social activities during the month.
- Given the relative lack of meaningful restrictions, we attribute the slump in activity to two factors. First, some consumers have adopted a more cautious approach to social consumption given the greater transmissibility of Omicron. Second, the sheer number of cases means large numbers of people were forced to isolate.