The latest official ‘Plan B’ restrictions are modest, and focussed principally on working from home where possible; compulsory masks in shops and on public transport; and COVID passes for nightclubs and larger venues. They are clearly targeted to areas with the least direct economic impact.
However, additional ‘softer’ advice to avoid unnecessary social contact, combined with the more cautious attitude of many people towards social mixing is now having a significant impact. Evidence is already beginning to show that Omicron is affecting consumers, and is having an increasingly severe impact on hospitality, with falling restaurant bookings and rising cancellations.
Omicron will temporarily stall the economic recovery. On a positive note, the supply side of the economy is now more resilient than in previous waves. Office workers have the skills and tools to work remotely and will readjust quickly; home delivery supply chains have been bolstered; and school closures (which impact the availability of labour) are now considered a last resort. Government policy is likely to continue favouring a ‘light touch’ approach as far as possible. However, the largest impacts on supply are likely to be from employees self-isolating or falling ill. This could prove highly disruptive over the next few weeks, given the scale of infections.
The impact of supply shortages can be clearly seen in rising inflation. CPI has accelerated dramatically from just 0.3% a year ago to 5.1% in November. These upward pressures could be further exacerbated if Omicron does create more supply chain disruptions. At its December meeting, the Bank of England’s Monetary Policy Committee chose to raise Bank Rate from 0.1% to 0.25%, judging that the medium-term risks of higher inflation outweighed any negative impacts on demand.
Today’s situation is very different to that in March 2020. Vaccines can be tweaked rapidly and our ability to manufacture and administer them is expanding. That, plus the sheer speed of the current wave means that any further restrictions should prove shorter-lived than previously, limiting the economic damage, and output should still comfortably exceed its pre-recession level during 2022.
Whatever Omicron’s economic impact, it has probably increased the perception that COVID is a long-term issue, which could affect corporate attitudes to office requirements and “just in case” supply chains. Companies need time to implement changes, and they require certainty to invest and make contractual commitments. We hope and expect that the additional uncertainly brought by Omicron will be a temporary blip.
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