Omicron effect on GDP small, but economy still only expected to grow by 1% in 2022 Q1

Main points

• Latest ONS estimates suggest the UK economy grew by 1.0 per cent in the fourth quarter of 2021, slightly weaker than we anticipated. We now forecast growth of 1.0 per cent in the first quarter of 2022.
• However, the economic impact of Omicron was far smaller than that of either of the two previous major waves of Covid-19. The 0.2 per cent fall in GDP in December was stronger than consensus forecasts, but in line with NIESR’s January GDP tracker, suggesting the possibility of a positive reading in January.
• Retail and hospitality contributed the most to December’s fall, with the healthcare sector providing the largest positive contribution.
• UK economy grew by 7 ½ per cent in 2021 after 9 ½ fall in 2020, but GDP in the 3 months to December still around half a per cent below pre-pandemic levels.

“The economic impact of Omicron was far smaller than that of either of the two previous major waves of Covid-19: a mere 0.2 per cent fall in December was even stronger than consensus forecasts, but in line with NIESR’s January GDP tracker, suggesting the possibility of a positive reading in January. Unsurprisingly, retail and hospitality contributed the most to December’s fall, with the healthcare sector providing the largest positive contribution.”

Rory Macqueen
Principal Economist - Macroeconomic Modelling and Forecasting

See our last tracker to follow the analysis