Omicron’s impact on the UK economy is expected to be modest

Boris Johnson’s decision to weather the Omicron wave of Covid-19 infection with minimal restrictions could prove to be the right demand for the UK economy, according to scientists who specialize in links between epidemics and economic data.

You have accused the ministers of determining their policies on the basis of political expediency, not strategy. However, they believe Omicron is likely to have only modest economic stimuli in December and January.

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

“When you look at things the way they are, it seems like we could just escape without overwhelming the NHS, but it’ll be a close shave if we do,” he said.

With Omicron’s health effects proving to be less severe than feared in a heavily vaccinated society, many economists now believe they can view the newest variant as just a nuisance spike to the UK economy by spring.

Samuel Tombs, British economist at Pantheon Macroeconomics, said: “In the second quarter, gross domestic product should be close to the level it would have reached without the introduction of the new variant.”

Economists have little doubt that the official December and January figures will show declining production levels once they are released as consumers spend less money in shops, pubs and restaurants before Christmas and the New Year.

Real-time data from the Bank of England shows a sharp drop in hospitality spending before Christmas and customer footfall was down significantly compared to the same period in 2019-20 before the pandemic.

However, with most people still working, shopping, and eating takeaway from home, they believe the overall effect will be limited, just as the economic downturn in the Delta Wave last summer was minimal.

UK retail sales rose 2.1 percent in December from the same month last year, according to data released Tuesday by the consulting firm KPMG with the British Retail Consortium, an industry association.

Consumer spending, which includes out-of-store spending like restaurants and movie theaters, rose 14 percent compared to December 2019, according to data from Barclaycard, which shows nearly half of the country’s credit and debit card transactions.

Sanjay Raja, chief economist at Deutsche Bank, said: “It shouldn’t come as a shock that December and January activity will be a little more subdued than before,” noted that England has restrictions on working from home and ministers urge people to be cautious would affect activity. “We only expect that [effect] to be humble, ”he added.

Most economists now expect GDP to decline in December and January to follow a likely robust month of growth when the official November figures are released on Friday.

Line chart of the GDP Index: 2019 = 100, showing that the recent waves of coronavirus have had smaller and smaller negative effects on the UK economic performance

“The damage to the services sector from the Covid resurgence means that GDP is likely to have declined in December and will struggle to grow strongly in early 2022, which is a poor starting point for expansion this year,” said Andrew Goodwin, UK Chief Economist at Oxford Economics.

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

A bigger problem for growth prospects this year, according to economists, is the rising cost of living, which will affect real incomes, especially after April.

James Smith, ING’s developed markets economist, said that given less wage pressures in the UK than in the US, “a drastic cost of living crisis. . . will limit consumer spending growth in the coming quarters ”.

With economists being relatively optimistic that the Omicron wave will proceed without any significant economic damage, the question arises for future waves of the virus whether the government should now deal differently with restrictions and future support for businesses and households.

Yates said that with vaccines that already prevent serious illnesses, there won’t be such a great health or economic need to delay infection. Although the country’s future ability to deal with the coronavirus will be better than it is now, “the motive for pushing infections into the future is not as strong”. [as it was]”, he said.

Flavio Toxvaerd, an economist at Cambridge University who has long researched the best ways to control infectious diseases, highlighted the government’s lack of transparency about the way it thinks. “The prime minister recently talked at length about getting the balance right between economic, social and health considerations but has provided no supporting evidence or analysis to support the policy other than to claim the balance is right,” he said .

He said the economic benefits of fewer restrictions now seem to be paying off but are “fraught with risk” and the economic benefits could prove short-lived if infections rise to levels the NHS cannot handle.

“Instead of carefully maneuvering through the pandemic, the government has [always] chosen to ride out the wave and apply the emergency brake at the last moment if needed. This could prove to be more costly than managing the spread of the infection more actively now, ”Toxvaerd said.

His caution is shared by most economists, who stressed that forecasts for the UK economy this year will still depend heavily 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 pre-pandemic GDP surpassing in the first half of this year. But even with above-average growth rates, the British economy is unlikely to return to its pre-pandemic trend this year.

Additional reporting by Valentina Romei

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