Growth in private sector activity slowed in the last quarter of the year amid labour shortages, rising costs and new COVID measures designed to curb the spread of the Omicron variant.
Growth was up by 21% in the period, compared with 32% last month, the Confederation of British Industry (CBI) said, adding that this was the slowest rate of growth since the three months to April.
But it remains well above the long run average (4%).
“Substantial challenges remain for businesses heading into Christmas,” said Alpesh Paleja, CBI’s lead economist.
The CBI’s CBI Growth Indicator is a composite of data on output, sales and business volumes and is based on responses to surveys from 516 firms between 22 November and 14 December.
Looking ahead, growth is expected to slow again in the coming three months (up 17%). This will partially take into account recent Omicron news, although around 60% of survey responses were submitted before 8 December, when Plan B measures were announced.
The government's Plan B measures included asking people to work from home, wear masks in public places and use vaccine passes.
“With uncertainty rising – associated with the sharp rise in Omicron cases – it’s no surprise that the near-term growth outlook has dampened,” said Paleja, adding that new support measures announced by the UK chancellor “provided welcome breathing space to boost confidence and will help hospitality and leisure businesses to keep their doors open."
But he said the government must monitor the situation closely and ensure that any new restrictions are accompanied by further targeted cashflow support.
Only manufacturers saw an acceleration in growth in the three months to December (up 29% from 17%), while business and professional services (up 16% from 40%), consumer services (up 23% from 28%) and distribution firms (up 21% from +32%), all reported slower growth.
CBI said consumer services firms expect activity to decline in the next three months ( down by 16%), while distribution (up 9%) and manufacturing (up 23%) expect growth to slow.
Only business & professional services expect a faster rise in activity (up 29%).
A recent Lloyds Bank Business Barometer showed business confidence remained unchanged at 40% and above the long-term average during the two week sample period (26 November – 10 December).
Earlier this month the CBI cut its forecasts for economic growth to 6.9% in 2021 and 5.1% in 2022 from previous estimates of 8.2% and 6.1%.
It said the downgrade mostly reflected weaker growth since its last forecasts in June and the supply chain problems that have slowed the recovery from last year's coronavirus slump were likely to end in mid-2022.