ECONOMY

UK recovery expected to withstand autumn surge in Covid cases

Economists and epidemiologists are increasingly confident that the UK’s economic recovery will be able to withstand an autumn rise in coronavirus cases as school term starts, workers return to offices and people socialise more indoors.

With Covid-19 vaccines still proving largely effective in limiting severe disease, expert opinion suggests that although a new wave could slow growth in gross domestic product, it was unlikely to reverse it as it did last winter.

Economies in most advanced countries have become much better at adapting to the virus, while public health specialists think a severe lockdown is unlikely to be necessary even though case numbers are likely to rise significantly.

Evidence from many countries early in the pandemic showed that the higher the prevalence of coronavirus, the worse economic conditions tended to become.

In a new paper for VoxEU, a policy analysis portal, Jean-Charles Bricongne and Baptiste Meunier, economists at the Banque de France, found that internationally, “even without a lockdown, pandemics affect economic activity through voluntary social distancing”.

UK data matches this. In July, economic performance deteriorated as the Delta wave intensified and consumers stayed at home. Retail sales fell 2.5 per cent in July month-on-month, with households showing little desire to increase borrowing and instead put money into bank deposits.

Steffan Ball, chief UK economist at Goldman Sachs, said: “We have seen a slower-than-anticipated recovery in some Covid-sensitive sectors, including arts and entertainment and transportation.”

But emerging evidence suggests that as case numbers fell and the school holidays started, consumers became more willing to spend, go to restaurants and visit shopping centres in August.

Payments company Barclaycard, which tracks nearly half of the nation’s credit and debit card transactions, reported a 15.4 per cent increase in such spending in August compared with the same month in 2019.

With most Britons not holidaying abroad, money going on hotels, resorts and accommodation grew for the third consecutive month compared to 2019, recording the greatest expansion since the onset of the pandemic. 

Samuel Tombs, UK economist at consultancy Pantheon Macroeconomics, however, suggested there was reason to be cautious this autumn. “Unless attitudes change, households will respond to the rising chance of catching Covid-19 by visiting services providers less often in the fourth quarter.”

Many sectors have also been hit by fragility in their supply chains, limiting the speed of the recovery.

But he added that the clear link between cases and economic performance was likely to become more nuanced. He pointed to the easing of rules to allow double-vaccinated close contacts of positive cases to avoid self-isolation; the fact that companies had been able to simplify doing business online; the likelihood that business investment was set to rise; and to the government booster jab programme he felt would underpin consumer confidence.

Column chart of contact tracing alerts per week in England & Wales (000s) showing the ‘pingdemic’ has passed, with self-isolation rules relaxed

Yael Selfin, chief UK economist at advisory firm KPMG, was more upbeat. She said she expected consumer caution to diminish even with an expected autumn surge of the virus.

“Provided schools still function, it is only physical retail, restaurants and hotels that are impacted by a new wave. Many consumers were hesitant to come out in the summer because they didn’t want to catch anything that might stop their holidays and that won’t be an issue in the autumn,” Selfin said.

One of the core drivers of economic activity will be whether hospitalisations can be kept down to a level that does not require new restrictions in the autumn. Scientists and public health experts are cautiously optimistic on this, but they do not discount the need to reintroduce some lighter-touch measures as winter pressures on the health service mount.

“In the summer, pressure on healthcare is lower, children are off school and mixing less, and people socialise more outside,” said Steven Riley, professor of infectious disease dynamics at Imperial College London. “That is all turned on its head over winter.”

In Scotland, the reopening of schools in mid-August prompted cases to jump above 7,000 a day for the first time. Weekly case rates among 15- to 19-year-olds peaked at just above 2,000 cases per 100,000, but are now falling, while rates among children aged 14 and under continue to rise, reaching 1,300 cases per 100,000 in the latest week.

Line chart showing that in Scotland, the new school term prompted a sharp rise in Covid cases

As a result, Scottish hospitals are starting to come under strain. In the week to August 31, 675 patients were admitted with Covid-19, an increase of 65 per cent on the week before.

On Monday, daily cases across the UK jumped to 41,192, up from 26,476 on the same day last week as many schools in England, Wales and Northern Ireland tested pupils ahead of the start of term. Hospitalisation and death rates, however, remained flat.

Linda Bauld, professor of public health at Edinburgh university and an incoming chief social policy adviser to the Scottish government, expects politicians will have to choose between turning off parts of the health service and turning off parts of the economy.

“It’s a political choice and I suspect the choice will be to keep the economy going and bear the brunt of additional hospital admissions,” she said, adding that shorter hospital stays in any future wave of the pandemic would reduce pressure on health services.

Liam Smeeth, an epidemiologist and newly appointed director of the London School of Hygiene and Tropical Medicine, said a similar wave of infections would hit England soon as well.

“We will see an increase in cases — there’s no doubt about it — but what matters with Covid is who is getting really ill,” he said. “I would be surprised if we have to shut down as completely as we did last winter.”

But he added that it was possible the government might end up “re-emphasising” the need for mask-wearing indoors and for people to avoid going to hospital unless absolutely necessary.

Smeeth pointed out that, regardless of official restrictions, many people would continue to modify their own behaviour to reduce the risk of infection, for example by working at home if possible and by buying online rather than going out shopping.

Additional reporting by Clive Cookson and Valentina Romei

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