Lockdown by stealth will hit the economy hard

Christmas parties are being cancelled all over the shop. Pubs and restaurants are reporting that guests are pulling out of bookings for Christmas lunches. Schools are cancelling nativity plays while Santa is facing the axe visiting children in care homes.

In the City,  Brewin Dolphin, one of the UK’s biggest wealth managers, has told employees to stay away from 10 December 10 until 7 January.  Brewin’s bosses have even advised staff not to feel bad about turning down invitations.

Law firms and banks are deciding whether to go-ahead or cancel their parties, with one legal partner telling me how tough the decision-making is. They don’t want to give in to the fear-mongering over the new Omicron variant but nor do they want to be responsible for staff being ill before the holidays.

At Google, bosses have taken a stricter stance. Staff have been emailed and told to move any planned face-to-face meetings until 2022, and even then to limit them to 15 people. All in person meetings and events are to be approved by a senior Google director.

Aviva, the insurance giant, has introduced daily lateral flow tests for staff while accountancy firm, EY, is one of many firms to ask employees to wear masks when walking around their offices. Other firms such as Virgin Media say they are reviewing precautionary measures in the office while several businesses are contemplating asking staff to work from home again.

Maybe everyone is over-reacting but it rather looks as though we are on the cusp of another lockdown. This time, though, it is a lockdown which is being achieved by stealth rather than government diktat. 

To borrow President Macron’s clumsy phrasing, it’s a quasi-lockdown but one that is already costing businesses millions and millions of pounds – and could potentially cost billions more.  The more the public hears about others cancelling events, the more they too will cancel going out, leading to a domino effect which will have a devastating impact on our economy. 

Like the panic buying of loo-rolls at the start of the pandemic, or the fuel crisis a few weeks ago, it is entirely rational that the public are putting off going out in the same way that consumers went crazy stocking up on essentials. 

Fear breeds fear. Whether the intention of the Prime Minister and the health secretary was to scare the public by imposing mandatory masks and new travel rules is unclear.

But it’s certainly put the wind up the country whether they like it or not just as we were hoping for some sort of return to normal life over Christmas. And the consequences are huge, both for the fragile economy and the even more fragile state of the public’s mental well-being.

As Kate Nicholls, the long-suffering chief executive of UK Hospitality, has warned, these latest restrictions come at a critical time for so many small businesses which were hoping to make up lost ground from last year’s lockdown.

Facing an even greater threat is the travel industry which has been knocked side-ways by the latest restrictions on travel in an attempt to contain the new Omicron variant and tough PCR tests for travellers coming into the UK. 

So far the dreaded pingdemic has not been brought back but if it is, the cost would be enormous. Economist Julian Jessop forecasts that a new self-isolation phase could slice 1% off GDP in December alone, equivalent to £2 bn. The July pingdemic shaved 0.5 % from GDP but he reckons the impact of a repeat could now be greater, because the rules are being tightened in school term time and when labour shortages are a bigger problem.

Hospitality accounts for around 3% of GDP, so if there are many cancellations, this could easily reduce GDP by another 0.5 per cent in December.

So who is to blame for this latest scare?

Critics have been quick to blame ministers – and government health advisers – for mixed messages. On the one hand Boris Johnson asked us to carry on normal life and said that another lockdown is not on the cards. Some SAGE members are still demanding a Plan B and more restrictions while Dr Jenny Harries, boss of the UK Health Security Agency, said we should limit socialising in December. 

Was Harries set up to become the fall guy by ministers who do not want to have to admit we may be heading for another lockdown? 

We don’t know. But the crossed-wires about what we should and shouldn’t do over the last few days has achieved a de facto lockdown.

As author Laura Dodsworth, noted in her book, A State of Fear, the members of SAGE know how to instil fear to change behaviour. In her book, she shows how SAGE advised the government on how to get people to follow the rules on social distancing at the start of the pandemic. 

This is what they wrote: “A substantial number of people still do not feel sufficiently personally threatened; it could be that they are reassured by the low death rate in their demographic group, although levels of concern may be rising.” As a result, they recommended that “the perceived level of personal threat needs to be increased among those who are complacent, using hard-hitting emotional messaging.” In other words, they needed to be scared.

Yet deaths, infections and hospitalisations are all down in the UK again – a pattern which has been steady for several days now.  At the World Health Organisation, officials are claiming that most Omicron cases are “mild” and there is no evidence the new variant has any impact on vaccine effectiveness against serious illness.

Who knows where we go next. Without this latest crackdown, the future was looking brighter than previously thought.  According to the OECD, the UK is going to hold on to its position as one of the world’s fastest growing economies and top of the G7 rankings for growth.

The OECD’s latest report estimates the UK economy will grow at 6.9 per cent this year, some 0.2 percentage points higher than previously expected. Next year is predicted to be good too, with the economy expanding 4.7 per cent. 

On a global level, the OECD’s chief economist, Laurence Boone, reckons GDP growth will be 5.6% this year and 4.5% in 2022, before settling back to 3.2% in 2023 – closer to rates before the pandemic – and figures worked out before the latest outbreak of Omicron.

But Boone also warned that the new Omicron variant may mean that governments around the world will have to fork out again for new bail-outs. So far the G20 group of wealthy nations had spent about $10tn (£7.5tn) in emergency support since the start of the pandemic.

Yet it would cost just $50bn to ensure a worldwide vaccination programme. As Boone put it: “We’re spending to support our economies, while we’re failing to vaccinate the whole world. As a result the world really is not looking better.” She is right. But let’s hope she is wrong about the impact of the new Omicron on our recovery.