The introduction of Covid-19 countermeasures across the UK and the rest of Europe, not to mention the US and Asia, in an attempt to combat the spread of the Omicron variant has raised the specter of the global economy stumbling into 2022 in a markedly weakened state. But how big is their impact likely to be?
Will there be layoffs?
Employers are unlikely to panic as Christmas approaches, although they are disappointed that customers have started to question their spending decisions. Many businesses, especially in the hospitality, retail and tourism sectors, were already understaffed.
A longer period of working from home could change the way businesses respond, while even tighter restrictions are set to be met with an increase in the number of businesses going bankrupt, perhaps before they have the possibility of laying off staff.
A recent report by the Bank of England found that more than 30% of small businesses in the UK were classified as highly indebted, with borrowing levels of more than 10 times their cash balances, up from 14% before the arrival of Covid-19.
Rishi Sunak has pushed back on calls from industry bosses to restore the furlough scheme and rejected Labor’s demand for increased sick pay to support workers who test positive for the virus. However, the Chancellor hinted that measures to protect the industries most affected would be considered if Omicron forced ministers to adopt new measures.
Will the prices go up further?
Stores are likely to increase their prices in response to the tighter restrictions. As rising cases and changing rules make bars, restaurants and shows less appealing, millions of households are expected to funnel money they would have spent on purchases there, at a time when restrictions mean that it is more difficult to import items into the UK. .
Future lockdowns in some of the world’s most important manufacturing hubs, including China, could further restrict the number of goods arriving in the UK, adding further pressure on prices.
Paul Dales, chief UK economist at Capital Economics, said the emergence of the Omicron variant would slow the recovery and increase the risk of higher inflation. “That arguably increased the upside risks to our consumer price index inflation forecast,” he said.
Will there be another recession?
Most economists believe mask-wearing in stores and working from home will do little to change their growth forecasts over the next two years. Most businesses have adapted to working from home and its reintroduction will cause minimal disruption. This means they expect the recovery to continue and the economy to recover above its pre-pandemic level.
However, many businesses will be affected by a lack of buyers, and the January sales could prove to be a massive flop.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said Omicron’s impact could be measured in lost GDP, with its growth estimate slashed to just 0.3% in the first quarter of 2022, versus a previous forecast of 0.8% .
It wouldn’t mark the start of a recession – which needs two consecutive quarters of negative growth – but would be a painful reminder of the enormous cost of the pandemic.