By Ian McConnell

GROWTH of the UK’s private-sector economy has slowed to its weakest pace in 11 months, but inflationary pressures remain intense, a key survey revealed yesterday.

The flash UK composite output index from the Chartered Institute of Procurement & Supply and IHS Markit – which covers manufacturing and services – fell to an 11-month low of 53.4 in January from a final reading of 53.6 in December. The slowdown was driven by services, amid restrictions to limit the spread of the Omicron coronavirus variant.

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CIPS and IHS Markit said input-cost inflation “remained stubbornly high”. They added: “Strong inflationary pressures continued across the service sector at the start of 2022. Both input costs and output charges increased at the second-fastest rate since the survey began in July 1996, exceeded only by November 2021. Respondents overwhelmingly noted higher raw material costs, staff wages and energy bills had led to a re-pricing of their services.”

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Martin Beck, chief economic advisor to the EY ITEM Club, said: “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. 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."

He added: "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."

Looking ahead to the next decision on interest rates due to be announced by the Bank of England on February 3, Mr Beck saw a dilemma for the Monetary Policy Committee.

He said: "Contrary effects on inflation and activity mean the MPC faces a difficult and hard-to-call judgement when it meets in February.”