Omicron uncertainty looms over the UK near-term outlook

We think the government’s shift to its Plan B Covid strategy is unlikely to have a significant impact on output. The emergence of Omicron may impact activity by making consumers more cautious, but until we know more about the health implications, we see no reason to lower our forecast again at this stage.
We expect the uncertainty to stay the MPC’s rate-raising hand next week. But with Ben Broadbent joining the list of members concerned about the tightness of the labour market, we expect the MPC to send a strong signal it will move in February if it’s clear that Omicron hasn’t materially altered the outlook.

What you will learn:

• The near-term outlook continues to be dominated by uncertainty around the Omicron Covid variant. We’re waiting for news from virologists on the likely health implications, but in the meantime the government has switched to its “Plan B” Covid strategy.
• The direct impact of these measures is likely to be small, though the fact the government has felt it necessary to introduce them may make some even warier of social consumption activities.
• Greater wariness would represent a setback, as recent data had shown some evidence that output in sectors heavily reliant on social consumption was recovering.