1. Money

    Kate Andrews

    Will the third wave stop our economic recovery?

    Will the third wave stop our economic recovery?
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    The UK economy continued to rebound in April, with this morning’s update from the Office for National Statistics showing GDP grew 2.3 per cent — slightly better than the consensus prediction of 2.2 per cent. The reopening of non-essential shops and outdoor hospitality on 12 April contributed to the boost. GDP now sits 3.7 per cent below its pre-pandemic levels, the closest we’ve come to achieving full recovery.

    Forecasters are increasingly confident that we’ll be back to pre-pandemic levels in 2021, even possibly before Q4. Capital Economics says ‘early indicators suggest that GDP growth was strong in May as well,’ when more indoor activity opened and numbers on indoor and outdoor socialising relaxed further. Oxford Economics agrees next month should see ‘another strong gain of more than 2 per cent’ which would get us tantalisingly close to where we were in February 2020.

    But the bigger question now isn’t what happened last month (which saw reopening stay on track) but what’s to come. The 21 June date is increasingly in doubt. The R-rate is estimated to be well above 1 and the Indian variant is possibly much more transmissible than officials were hoping would be the case.

    But this wave of cases is radically different from the previous ones. As Professor Philip Thomas lays out in his cover piece for the magazine this week, the virus is now hitting what Chris Whitty described as a ‘wall of vaccinated people’. According to Thomas, this should keep hospitalisations down to manageable levels that don’t threaten NHS capacity.

    But the situation remains tricky. Due to the lag between rising infections and hospitalisations, much of the data the government would like to see will be coming in right around 21 June. There are already some positive signs: in Bolton, where the Indian variant took hold early on, the over-60s have only made up a fraction of infections. Hospitalisations have plateaued. On Coffee House, Ross Clark breaks down Public Health England’s update this morning that, despite the number of Delta variant cases tripling in a week, so far that has not corresponded with a rise in hospitalisations.

    But this is unlikely to be enough to meet the government’s threshold for a confident reopening, a bar which seems increasingly out of reach. The pivot from focus on hospitalisations to infections would suggest a more cautious approach. Officials are reported to have returned to talking about how vaccines aren’t 100 per cent effective — a standard which no one thought we’d reach.

    There’s a glimmer of hope for the wedding industry, which is speculated to see some easing at the end of the month, but broadly another delay could be devastating for businesses, as capacity remains limited and many businesses unable to turn a sizeable enough profit as a result.

    Much will depend on the conditions of any delay, and just how long it would last for — but there is a bigger principle at stake. Much of the confidence driving business over the last six months has been that vaccines are the route out of restrictions, that a vaccinated Britain can once again resume normal life. If reopening is delayed indefinitely (or social distancing measures don’t lift), this confidence is set to take a huge knock. It won’t necessarily take shutting down the economy again, but simply keeping it in limbo  — throwing the current optimism over an economic recovery off track.