The cause of this pessimism is the appearance of the Omicron variant of Covid-19, which seems to be far more transmissible than previous dominant strains of the virus with rates of infection 70 times that of the Delta variant.
The Confederation of British Industry is reporting that growth in 2021 will be substantially below the 8 per cent it forecast in June at 6.9% while its 2022 forecast has been cut from 6.9% to 5.1% - in light of Omicron even that now looks optimistic.
The CBI attributed this downgrade to a combination of weaker-than-expected output but also to ongoing problems with the global supply chain which is expected to impact growth.
KPMG has provided an even gloomier outlook, suggesting that growth could slump to just 2.6 per cent if social distancing is required and just 1.8 per cent if vaccines prove ineffective against the new variant.
Both organisations have warned that the government needs to act to prevent a steep fall in business investment and that, “the UK’s new year resolution must be to give firms the confidence to go for growth,” according to the CBI’s director general, Tony Danker. He’s warned of the negative impact of the planned increase in corporation tax and government plans to remove the ‘super deduction’ a tax break worth £25bn to industry.
Jon Holt, the chief executive of KMPG UK, has called on the government to give businesses the confidence they need to invest.
Figures still point to an economy growing strongly and order books at levels not seen since the 1970s, but Omicron has certainly clouded the economic outlook and made planning for the future much harder.
People are now working from home again and should the Omicron variant prove more dangerous demand for products, rather than services, is likely to increase – much as it did throughout 2020 – leading to further pressure on supply chains and could lead to further inflation, already at decade high levels.
The change in sentiment comes at a time when SMEs were looking to build back from the crisis with plans to invest more. According to research carried out by the Fintech business lender MarketFinance and which asked 2,000 SME owners across the UK about their outlook for 2022 and beyond the majority said that they had ambitious plans for recruitment, the renewal of equipment and machinery, and were considering domestic and international expansion.
The arrival of the Omicron variant could threaten all of this, so the big question for the next few weeks, let alone for 2022, is should we be bringing in more stringent restrictions now or should we be waiting to see how things pan out?
