In more ordinary times, economic trajectories are shaped by technological advances, demographic trends and policymakers’ use of fiscal or monetary levers. Over the past 16 months, by far the most influential driver of the UK’s economic performance has been the public health restrictions implemented in order to control the spread of Covid-19. The government has already lifted many of the most intrusive domestic restrictions, with limited indoor gatherings now permitted and shops and restaurants able to open. On 19th July, the government will execute the fourth and final step of its roadmap out of lockdown, removing the remaining limits on indoor and outdoor gatherings.
Consumers’ response to the initial rounds of lockdown easing earlier in the spring was emphatic, with a variety of indicators pointing to a rapid recovery of spending activity. However, there are signs of slowing momentum, with card spending in the final week of June more than 10% below its peak in early May, perhaps reflecting an exhaustion of pent-up demand or a depletion of lockdown savings. Cebr estimates that the easing of restrictions on “Freedom Day” will boost the UK’s GDP by a further £2.2 billion per month, equating to £74 million of additional economic output each day.
From an economic standpoint, the most direct beneficiary of “Freedom Day” will be the entertainment industry, with nightclubs, theatres and music venues all itching to open their doors after a prolonged absence. As millions of football fans will be aware, pubs and bars are currently restricted to offering table service, heavily constraining the numbers of guests that they can admit at any given time. These restrictions will also be removed from 19th July, providing a further boost to the UK’s pubs, bars and restaurants. With that being said, Cebr does not expect business as usual to resume once restrictions are lifted. Lingering fears and rising Covid-19 infection rates will mean that some will opt to limit their social interactions voluntarily, even if not compelled to by the government.
Of course, these economic benefits will only last as long as the public health restrictions are absent. Covid-19 infection rates are on the rise with more than 30,000 new cases each day, although hospitalisation rates are a fraction of what they were earlier in the pandemic. While the hope is that the closure of schools for the summer holidays together with rising levels of immunity in the population will slow the spread, the risk of a re-imposition of some restrictions in the autumn cannot be discounted. Whether or not 19th July will truly come to represent the end of the legal limits on social contact, the UK economy has shown an impressive ability to bounce back swiftly from repeated spates of intense disruption. This has been aided by the fact that, since the onset of the pandemic, it has been all hands on deck, with the Bank of England and the Treasury making a concerted effort to shore up the economy. The key challenge for the future will be avoiding a period of stagnation in the aftermath of the crisis amid a backdrop of high inflation and elevated public debt that will likely cause a sharp withdrawal of stimulus measures.
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