The response to the Covid-19 variant has reduced demand for some products and services.
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British business confidence began to feel the impact of the Omicron variant of coronavirus this month, alongside further upward pressure on prices and staffing costs, a survey showed on Tuesday.
Lloyds Bank said its monthly business confidence survey, conducted between Nov. 26 and Dec. 10, held steady at 40% this month, well above its long-run average of 28%.
However, responses weakened in the second week of the survey when the impact of the Omicron variant began to become clearer, with sentiment falling back to 32%, similar to during the spring and summer.
Last week IHS Markit purchasing managers' data showed activity growth fell to a 10-month low this month.
"Businesses face into a number of headwinds and challenging trading conditions, including higher interest rates, as we move into 2022, but many remain resilient and hopeful that acute downside risks are not realised," said Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking.
The Bank of England raised its main interest rate to 0.25% from 0.1% last week - despite seeing a short-term hit to growth from Omicron - and its chief economist said further rate rises were likely if price pressures did not ease.
Lloyds survey showed 45% of businesses expected to raise prices in December, up from 44% in November, as wage pressures - an especial concern for the BoE - increased further.
"Pay expectations continue to show strength, reaching new highs of 48% and 26% for firms expecting average pay growth of 2% and 3% respectively," Lloyds said. Some 14% of businesses expected to raise pay by at least 4%, the bank added.
The pay expectations are broadly in line with those of other surveys.
(Reporting by David Milliken, editing by Andy Bruce)