THE BRITISH economy appears to be weathering the cost of living storm as the drag on businesses and households from pandemic curbs peters out.

The scrapping of Plan B restrictions prompted Brits to pour back to high streets, pubs, bars and restaurants, lifting output in the services economy to an eight-month high of 60.8 this month, according to IHS Markit's latest purchasing managers' index (PMI).

The sharp turnaround in the fortunes of services businesses marks what is likely to be the end of the virus' influence on the UK economy.

Almost all Covid-19 restrictions will be ditched this Thursday.

The likelihood of the Bank of England hiking rates for the third time in as many meetings has strengthened after the robust PMI reading, experts said.

"The odds of an increasingly aggressive policy tightening have shortened, with a third back-to-back rate rise looking increasingly inevitable in March," Chris Williamson, chief business economist at IHS Markit, said.

The composite PMI, which measures output generated by the UK's entire private sector, also hit an eight month high of 60.2.

A reading above 50 indicates most businesses said output is growing.

However, inflation possibly peaking above eight per cent, tax hikes and higher interest rates are expected to combine to create the worst cost of living crunch in recent history.

Economists are concerned the potential steepest erosion in real take home pay for decades could trigger a pull back in consumer spending, weighing on UK economic growth this year.

Threadneedle Street recently revised down its forecasts for output growth in 2022 to 3.75 per cent from five per cent.

(c) 2022 City A.M., source Newspaper