At the end of November, news of the new Omicron coronavirus variant raised concerns over both the physical and financial health of the UK. Let’s take a look at how Omicron could affect the UK’s economic recovery post COVID-19.
Tuesday 30th November
On 30th November, vaccine makers said the existing vaccines would not be as effective against the new variant. These comments led to widespread significant falls in share prices in the UK and across the globe.
Bank of England Policymaker, Catherine Mann, said that the Omicron variant could hurt consumer confidence which would weaken the economy’s recovery.
Industries such as hospitality, travel and tourism have already started to notice changes due to a lack of consumer confidence.
Hospitality companies have seen a number of firms cancel their plans for Christmas parties due to fears of socialising whilst the Omicron variant is spreading. A survey of 2,000 office workers by COVID-19 testing business Prenetics found more than half of employers had scrapped plans for the traditional Christmas get-together.
The travel and tourism sectors have also been hit after the red list was reintroduced and travellers to the UK are once again required to have a negative PCR or lateral flow test in the two days before departure and to self isolate until tested negative on a private PCR test after arriving in the UK.
The addition of more testing has made holidays more expensive, meaning many bookings were cancelled as a result.
Wednesday 1st December
On Wednesday 1st, Bank of England Governor, Andrew Bailey, announced that the economic impact from COVID-19 had faded since the start of the pandemic but that it still remains strong. British consumer price inflation reached a 10-year high of 4.2% back in October and the Bank of England now expects it to reach 5% in the second quarter of 2022.
Bailey also discussed the inflationary pressure due to supply chain difficulties and an increased demand for consumer goods instead of services throughout the pandemic, though he didn’t say whether or not he thought the Omicron variant would further these problems, being careful to use the same language from the bank’s November policy statement.
However, he did add that if more lockdowns were to come then the manufacturing and shipping of goods from east Asia could be disrupted.
“Even now, services are recovering but we have still got quite a long way to go. That has put quite a strain on supply chains around the world.”
Thursday 2nd November
The following day, UK shares fell even more with several countries reporting cases and major central banks warning about inflation on the horizon. The benchmark FTSE 100 index (.FTSE) ended 0.6% lower, while the domestically focussed mid-cap index (.FTMC) fell 0.9%.
Financial markets lowered their expectations of a Bank of England Rise on 16th December, with the chance of a rate rise lowering from three quarters to two thirds.
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