The UK economy is recovering from Omicron – but the cost-of-living squeeze looks set to worsen

While some of us may take the opportunity to book holidays and head out to restaurants, many of Britain’s poorest families are grappling with surging prices, says Ben Chapman

Prices of a host of goods from fuel to food are rising and more firms are facing huge cost increases that will be passed on to consumers (Peter Byrne/PA) (PA Wire)

Higher spending on holidays and leisure is helping to boost the UK economy while businesses are at their most optimistic in months, according to new figures. We can also see similar indications on journey numbers and card spending, which are back at levels seen before the Omicron variant hit. These are welcome signs that an economic recovery from Omicron is possible, but there are plenty of reasons to remain concerned.

The index compiled by IHS Markit jumped from 54.2 in January to 60.2 in February. Anything above 50 indicates growth. A surge in restaurant bookings helped boost the services sector, which makes up the bulk of Britain’s economy. UK firms reported surging orders and their highest level of optimism since May last year when the country reopened after lockdown. Job creation also picked up.

Chris Williamson, chief business economist at IHS Markit, said the survey pointed to a “resurgent economy”. Boris Johnson’s decision to further relax Covid rules is seen as risky by scientists but in the absence of another surge in cases, it may further boost activity.

Meanwhile, though, the surging cost-of-living crisis is concerning. Strong demand has met constrained supply, pushing prices higher and higher. The cost of inputs like raw materials and labour rose at its fastest rate since November and the second-fastest since the index began in 1998.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said inflation had “taken a chunk out of business profits”. But companies won’t take all of the pain; inflation is likely to be passed on to customers in the coming weeks and months.

Food and consumer goods companies Nestle and Reckitt Benckiser, which make hundreds of well-known brands including KitKat and Durex, both recently said they had been forced to put up prices. More will follow. While some of us may be taking the opportunity to book holidays and head out to restaurants, the cost-of-living squeeze is far from over and looks set to get worse.