We’ve been consistently cautious about the recovery. A trampoline bounce in Q3 was built in and indeed looks to have happened, possibly more strongly than even the optimists had hoped. But whether this continues into Q4 and early 2021 was always in doubt. Tens of thousands of businesses are hanging on by a thread and likely to run out of cash, meaning that the risk of major job losses when furlough ends is still acute. No doubt there will be more measures to keep the economy moving forward.
All the speculation about how to push the economy forward has been short circuited by the new data showing the UK following in the tracks of Spain and France with the numbers of coronavirus cases bouncing back sharply and the numbers going into hospital and dying edging up slowly. The much feared ‘second wave’ is upon us.
This note looks at some of the consequences of various measures that are likely to be applied to slow the growth of the disease.
Ten pm curfews have already been announced in much of the North East of England and in some counties in Wales. Cebr research 5 years ago found the London night time economy generated £21 billion of value added, though only about a tenth was directly from leisure and entertainment – the biggest contributions came from financial, professional and IT services much of which would be relatively unaffected by a curfew. But there is a potential £2 billion annual cost if curfew measures reach London, though the costs elsewhere will be proportionately smaller.
Regional lockdowns – Cebr’s economic powerhouse report for Irwin Mitchell concluded that at its peak the lockdown in the North East of England was running at a cost of £70 million a day or 34% of Gross Value Added. If an equivalent full lockdown were to be applied again, the costs might well be on the same scale.
Partial lockdowns – it appears from the latest data on hospital admissions, intensive care unit admissions and fatalities that the latest bout is less virulent than its predecessors, possibly because of its demographics. So it is relatively unlikely that we will see another full lockdown. But even partial lockdowns could reduce GVA, if by less than the peak impact in April and May. But GDP might be as much as 3-5% lower in Q4 than Q3 if two things happen – first the return to going out, so successfully promoted by Eat Out to Help out, is reversed and second the more general return to work which coincided with the reopening of schools is reversed by increasing fears of a return of the disease.
This would cost the economy about £250 million a day, roughly a tenth of the impact of the lockdown at its peak in April. But the bigger cost is the unmeasurable cost – many people feel that progress going into reverse would knock the stuffing out of consumer and business confidence. Whereas the first lockdown was bearable on the assumption that it was temporary, a second lockdown will make many people lose confidence in a recovery in the foreseeable future. This will have knock on effects on investment and business shutdowns as well as on jobs. Many people are being kept on, not because of their current productivity but so that they will be available when business picks up. If people start to lose hope in the economy recovering in the foreseeable future, the knock-on effect could well be a multiple of anything that could emerge from an economics calculation.
Fortunately our central expectation is that this will not happen.
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Contact: Douglas McWilliams firstname.lastname@example.org phone: 07710 083652