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Economy erased Omicron hit in January ahead of Russia’s war

Experts warned that soaring inflation will put pressure on businesses and households.

11 March 2022

Growth sped up in the UK’s economy in January as the impact of Omicron was erased before Russia invaded Ukraine weeks later.

Gross domestic product (GDP) increased by 0.8% over the month, the Office for National Statistics revealed on Friday.

It wiped out the 0.2% drop seen in December, and means that GDP is actually 0.8% above its pre-pandemic level.

Although experts warned that the economy is not out of the woods, as it will have to deal with the inflation shock exacerbated by the Russian invasion of Ukraine.

ONS director of economic statistics Darren Morgan said: “GDP bounced back from the hit it took in December due to the Omicron wave and is now 0.8% above its pre-pandemic peak.

“All sectors grew in January with some industries that were hit particularly hard in December now performing well, including wholesaling, retailing, restaurants and takeaways.

“Computer programming and film and television production also had a good start to the year.

“While supply chain issues persisted in certain sectors, output in both construction and manufacturing grew for the third month running.”

Experts had been predicting a rise of just 0.1%, according to an average supplied by Pantheon Macroeconomics.

Although it has wiped out the fall seen from both Omicron and earlier variants of Covid-19, there is no telling where the economy might have been today had they not emerged.

And although it has returned to its former size, the economy has changed over the last two years.

Unsurprisingly human health and social work has become a much larger part of the UK’s economy during the pandemic, which was unprecedented in living memory.

The information and communication sector and the science sector has also grown in importance for the economy.

Meanwhile, real estate, accommodation and food and other service activities all continue to suffer.

These changes in the economy could still revert to their pre-pandemic make-up, or they could be permanent.

Problems are likely to appear in coming months’ data.

Inflation was already high before Russia invaded Ukraine two weeks ago. Now the war will push up prices even further for both people and businesses.

“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,” said Suren Thiru, head of economics at the British Chambers of Commerce.

“Russia’s invasion of Ukraine has increased the risk of a recession in the UK by exacerbating the already acute inflationary squeeze on consumers and businesses and derailing the supply of critical commodities to many sectors of the economy.”

He added: “We urge the Chancellor to use the upcoming Spring Statement to tackle the cost-of-doing-business crisis by delaying the National Insurance rise and committing to no further policy measures that will increase costs for business for the remainder of this Parliament.”

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