Tue. Jan 18th, 2022


Boris Johnson’s decision to dispel the Omicron wave of Covid-19 infections with minimal restrictions may, according to academics specializing in links between epidemics and economic data, be the right call for the UK economy.

They accused ministers of determining policy on the basis of political efficiency, not strategy. But they believe Omicron will probably only have a modest boost to the economy in December and January.

Tony Yates, an independent economist and former Bank of England official, said that, more by luck than judgment, the Omicron wave is likely to pass without the need for stricter restrictions than those already imposed – especially at home. work where possible.

“If we look at things as they are, it seems like we might just be able to escape without being overwhelmed by the NHS, but it will be a careful shave if we do,” he said.

With Omicron’s health impacts appearing to be less serious than feared in a highly vaccinated society, many economists now believe they will be able to look back on the latest variant as nothing more than an annoying blow to the UK economy by spring.

Samuel Tombs, British economist at Pantheon Macroeconomics, said: “In the second quarter, the gross domestic product should be close to the level it would have reached if the new variant had not emerged.”

Economists have little doubt that when the official figures for December and January are published, it will show a shrinking level of output as consumers fall back before Christmas and into the new year and spend less in shops, pubs and restaurants.

Line chart of index: February 2020 = 100 showing Expenditure on socialization fell sharply at a time it would normally be strong as the Omicron wave spread across the UK in December

Real-time data from the Bank of England shows a sharp decline in spending on hospitality before Christmas and pedestrians were far off compared to the same period in 2019-20 before the pandemic.

But with most people still working, shopping and eating takeaways from home, they think the overall effect will be limited, just as the economic downturn in the Delta Gulf in the summer of last year was minimal.

Sanjay Raja, a senior economist at Deutsche Bank, said: “It should not come as a shock that activity in December and January will be a bit more subdued than before,” noting that restrictions in England to working from home and encouraging ministers. to be careful would hit activity. “We just expect it [effect] to be modest, ”he added.

Most economists now propose a decline in GDP in December and January to follow which is expected to be a strong month of growth when official figures for November are released on Friday.

Line chart of GDP index: 2019 = 100 showing Recent waves of coronavirus have had smaller and smaller negative effects on UK economic output

“The damage to the services sector from the revival in Covid means it is likely that GDP fell in December and will struggle to grow much in early 2022, creating a weak starting point for expansion this year,” said Andrew Goodwin, chief economist of the UK at Oxford said. Economy.

But the dip should be short, he added, because Omicron went through the population so quickly with few formal restrictions. “Experience from previous virus waves suggests that the subsequent setback is likely to be strong,” Goodwin said.

A bigger problem for the growth outlook this year, economists said, was the rise in the cost of living, which would hit real income, especially after April.

James Smith, developed market economist at ING, said that, with wage pressures lower in the UK than in the US, “a sharp cost-of-living crisis. . . will limit consumer spending growth in the coming quarters ”.

With economists relatively optimistic that the Omicron wave will pass without significant economic damage, the question for future waves of the virus will be whether the government should now take a different approach to restrictions when it comes and to future support for businesses and households.

Yates said that with vaccines that are already effective in preventing serious diseases, there will no longer be such a great health or economic need to introduce curbs that slow down infections. Although the country’s future capacity to deal with coronavirus will be better than it is at present, “the motive for repelling infections in the future is not so strong [as it was]”, he said.

Flavio Toxvaerd, an economist at Cambridge University who has long researched the best ways to control infectious diseases, stressed the lack of government transparency in thinking. “The prime minister recently spoke at length about the balance between economic, social and health considerations just right, but did not provide any supporting evidence or analysis to support the policy other than to claim that the balance is right,” he said.

He said the economic benefit of fewer restrictions, although it now appears to be bearing fruit, is “fraught with risks” and the economic benefits could be short-lived as the number of infections rises to levels at which the NHS cannot cope.

“Rather than maneuver carefully through the pandemic, the government has [always] chosen to ride the wave out and use the emergency brake at the last minute in case it is needed. It can apparently be more expensive than managing the spread of infection more actively now, ”Toxvaerd said.

His caution is reflected in most economists, who stressed that forecasts for the UK economy this year were still highly dependent on the course of the pandemic and the severity of future coronavirus variants.

Most expect the recovery from the initial pandemic shock to continue with the pre-pandemic level of GDP surpassed in the first half of this year. But even with continued above-average growth rates, the UK economy is unlikely to return to its pre-pandemic trend this year.



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