Apples and oranges: Can the UK economy ride out the Omicron wave?
As Omicron strikes and restrictions are reintroduced, the economy is in a better position to take the hit, suggests Professor Andrew Godley in our latest Leading Insight.
The Omicron wave is generating some worrying numbers, with the R figure for the new Covid variant reported to be as high as 2.5. The UK Government has yielded to the strong consensus among its scientific advisors to restrict social contacts in the run up to Christmas, especially with the return to home working where possible in Plan B.
The immediate impact
The postponement of the return to the normal working week for millions of office workers will have an immediate and direct impact on transport (train, bus and tube journeys down) and on those services that the commuting office worker depends on (no more coffees on-the-go).
And the wider loss of consumer confidence under Plan B will impact specific sectors disproportionately. The travel and hospitality sectors will be hit again. While airline bookings were recovering in early November to reach as high as 80% of their pre-pandemic 2019 level, the spread of Omicron has sent bookings tumbling back down to half the 2019 level, along with share prices. The fear gauge for business travellers is related to changing rules and the worry of being trapped overseas when the rules change.
Retail centres will likely have a little less footfall than they were hoping, as cautious shoppers complete their Christmas lists via home delivery services instead. After a few months of celebrating the return to near normality (and the release of big budget blockbusters such as James Bond’s No Time to Die and Spiderman: No Way Home), cinema chains and film studios will be poring over the fine detail of their models for premium fee streaming.
Better prepared than before?
But beyond the obvious sectors, the strong consensus is that most businesses have adapted well to remote working. The Financial Times’ survey of economists suggests that the overall economic hit will be fairly small. Each successive Covid wave has led to a much-reduced economic impact, with the first wave in March 2020 leading to a severe economic depression; the January 2021 second wave only leading to a mild downturn; and the third in September 2021 barely even registering as the public have largely adapted to basic social distancing and mask-wearing measures.
So, humans (consumers and workers) have adapted overall. Economists can resurrect their favourite trope about apples and oranges. Of course, some sectors are committed to potentially stranded assets under severe Covid conditions. But other sectors have expanded enormously. Film and TV production in the UK has hit a record high, and thanks to the likes of Bridgerton, Peaky Blinders and James Bond. Even allowing for the distortions of tax relief, the transformation of the UK into a global hub for the visual media has been accelerated by the dramatic increase in global viewing habits since March 2020. Welcome news for the expansion of Cine Valley and Shinfield Studios at the University’s Thames Valley Science Park, which confirmed Disney as its first client this week.
What happens next depends almost entirely on those tantalising anecdotes from South Africa about the muted severity of the Omicron variant. If proven to be true in the northern hemisphere winter, and if hospitalisation rates follow a much lower trajectory than previous waves, then there will be celebratory parties around the world before Easter.
But if hospitalization and death rates are remotely comparable to the Delta variant, then the current consensus of the likely muted economic impact of Plan B may well be ridiculously optimistic.