B For Backup: The Government’s new Covid Plan B and its economic effects

December 18, 2021

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3 min read

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What's going on here?

With cases of the new Omicron variant of Covid-19 rising, the Government has released a ‘Plan B’ with new policies and restrictions that may have a significant effect on the economy.

What does this mean?

Since its first report, cases of the Omicron variant have been doubling every two to three days. On the 8th of December 2021, the Prime Minister announced that extra measures would be introduced to slow down the spread of the variant. Measures included compulsory face coverings in indoor spaces, a recommendation to work from home where possible, mandatory vaccine passports and the possibility of daily testing instead of mandatory isolation after a positive test result.

Many are worried about the economic effects of these new policies, however, it is clear that this new set of rules are less strict than those last winter. Over the last 18 months, companies and businesses have adapted to operating with Covid-related obstacles. Jonathan Gillham, the chief economist at PwC, told the BBC that he believed that the impact of the Government’s Plan B would “be pretty limited”.

What's the big picture effect?

Covid’s two year long history has caused many businesses and industries to adapt, but the newest set of restrictions could still have detrimental economic impacts for certain industries. Restaurants, pubs, bars and nightclubs were among the businesses that suffered the most during the first set of lockdowns.  The Federation of Small Businesses for Gloucestershire predicted that the hospitality and leisure sectors would once again be hit the hardest.

As suggested, economic research consultancy Pantheon Macroeconomics already found data suggesting that there were decreased numbers of table bookings at restaurants, fewer people going to cinemas, and making online searches about venues on Google. This makes it harder for the hospitality sector to get back up from the already detrimental effects of the first lockdowns as many bars, restaurants and shops rely on the holiday season for a significant portion of their revenue. In addition, Sam Holliday from the Federation noted the “knock-on effect” work from home schemes would have on smaller businesses that rely on a workforce going into offices such as small food vendors or dry cleaners. The furlough scheme that supported these businesses during the height of the pandemic has been withdrawn with no further plans of returning and trade unions are calling for government support.

Plan B also poses the possibility of rising prices and a delay in the rise of interest rates. Paul Dales from Capital Economics stated that the Omicron variant “has arguably increased the upside risks to our consumer prices index inflation forecasts”. It is predicted that the added pressures from the possibility of international manufacturing hubs closing down will force shops to raise prices to stay in business. Jane Foley, an analyst at the RaboBank, said that the announcement of Plan B measures were arguably a factor in the drop of the pound against the dollar as investors believed that the Bank of England was less likely to raise interest rates. This again points to higher prices in shops as imports become more expensive and suggests that consumers who now lack a furlough scheme to fall back on will have a harder time accessing certain goods.

Because the Omicron variant is so new, it’s difficult to see what will happen in the future. The government’s response will most likely change with the speed in which the Omicron variant spreads and develops, how dangerous the variant becomes and how quickly the vaccine rollout and booster shot roll out will be. While the severity of restrictions are unclear, the Prime Minister will most likely continue to set more and more guidelines to minimise outdoor activity and large social gatherings, in order to reduce the negative impact these restrictions will have on the hospitality and service industries.

Report written by Woojin Jina Nam

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