Omicron prone to sluggish UK bounceback from financial Covid shock

It has taken a 12 months and a half however the UK economic system has now regained the bottom misplaced throughout the early levels of the Covid-19 pandemic. A greater than anticipated efficiency final November means nationwide output is now 0.7% higher than it was in February 2020.

Different nations reached this milestone sooner, with the US for instance already working nicely above its earlier peak. Even so, Britain has skilled what economists name a V-shaped recession, with a precipitous drop in exercise in March and April 2020 adopted by a brisk – if often interrupted – restoration.

That sample is defined by the character of the Covid shock. Governments imposed lockdowns in an try to forestall the virus spreading, and as soon as the restrictions have been eased companies that had been closed reopened and economies bounced again. The UK economic system contracted by much less throughout the monetary disaster of 2008-09 than it did in 2020 however took for much longer to regain the misplaced floor.

November’s 0.9% month-to-month enhance in output was attributable to a mix of things: the easing of provide chain bottlenecks that had been hitting manufacturing and building companies; shoppers buying early for Christmas; and folks feeling extra assured about going out to get pleasure from themselves.

The arrival of the Omicron variant has muddied the waters. It seems to be inevitable that output fell in December owing to widespread workers absences, the introduction of the federal government’s plan B restrictions and people turning into extra cautious.

January can be one other robust month so the possibilities are that the economic system will fall again beneath its February 2020 peak. If, as anticipated, the federal government decides to ease restrictions in England later this month, output will get well once more in February and March.

However as Paul Dales, of Capital Economics notes, April will see the economic system hit by a double whammy of rocketing vitality payments and better taxes. As is usually the case with the UK economic system, it is going to be one step ahead, one step again.