A "Troublesome Virus Wave" will be Avoided: Pantheon Macroeconomics

- No further national lockdowns likely: Pantheon Macroeconomics
- Prediction made despite 'Indian variant'
- Delay to June 21 reopening to have minimal economic impact
- Local lockdowns could protect economic recovery

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The significant reopening of the UK services sector on May 17 will fail to trigger a sufficiently large wave of Covid-19 cases to prompt the government to reintroduce restrictions in the summer, according to economists at a leading independent financial and economic research house.

The call by Pantheon Macroeconomics comes as the UK's reopening roadmap is said to be threatened by the emergence of a Covid-19 variant first detected in India, known as B.1.617.2.

Scientists say there are signs that the variant is more transmissible than its cousin the B.1.17 variant which was responsible for the UK's second wave at the turn of the year.

"Covid-19 is more transmissible indoors, so its growth rate will pick-up over the coming weeks, all else equal. In addition, the Indian variant, B.1.617.2, is rapidly becoming the dominant strain," says Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics.

Tombs has was ranked the most accurate forecaster of the UK economy in 2020 by Refinitiv, The Sunday Times ranked him the top forecaster for the UK economy in 2014 and 2018 and 2019.

He says he believes the overall reproduction rate for Covid-19 will rise as B.1.617.2 crowds out other variants. 

But despite the rise of the variant the overall cases in the UK remain stable around low levels with the most recent available data showing 1979 reported on Sunday May 16, which represents a week-on-week drop.

Tombs says cases would therefore be lifting off low levels, noting the seven-day total is 96% below its January peak and 19% lower than on April 12, when all shops and some consumer services businesses reopened.

Image courtesy of Pantheon Macroeconomics. 

"We are at very low levels of infections, cases and hospitalisations," Steven Riley, professor of infectious disease dynamics at Imperial College London, told BBC Radio 4.

"This is the point in the road map where we would have expected perhaps an increase in infections anyway. I think that most people would be expecting an increase, it is just the degree of the increase," adds Riley.

Given the low starting levels, Tombs says it would require a drastic up-shift in case rates to take the country back to a position where the government would consider rolling back the reopening process.

"At the current growth rate, it would take another 30 weeks for cases to reach the level in early November, which persuaded the government to impose the second lockdown," says Tombs.

All the while the vaccination programme continues at pace, meaning the variant is spreading into an increasingly resistant population.

Image courtesy of @UKCovid19Stats

However, the government remains nervous and fears that a delay to further relaxation in rules are growing.

The Times reports on May 18 that Prime Minister Boris Johnson will no longer announce next week that fines for not wearing face masks will end next month, or that businesses will no longer be compelled to keep people at least a metre apart.

The rules were set to be part of the final stage of reopening, scheduled to take place on June 21.

Economists at ING however say were the UK government to delay the final phase of reopening the hit to the economy would be limited.

"Compared to the economic boost of the lockdown-easing today and back in April, a 'June pause' probably won't significantly derail the UK's recovery," says James Smith, Developed Markets Economist at ING Bank N.V.

We note in this article that any delays are therefore unlikely to materially impact the Pound's trajectory.

Data shows that a seven-day rolling count of of cases in the North West of England - where the Indian variant has taken hold - has risen to 40 per 100K people, from 26 at the start of May.

If the growth rate here starts fading over coming days it could be a sign that these outbreaks were in fact seeded by large numbers of travellers returning from India ahead of the country being placed on the red list.

If so, anxieties will likely start receding.

John Burn-Murdoch, Senior Data-visualisation Journalist at the FT says there are a couple of reasons to pause before assuming we’re going to see B.1.617.2 cases steepen and proliferate.

He says data shows an "increasingly fuzzy relationship between its prevalence and overall growth", suggesting "the higher early growth rates seen from B.1.617.2 may be caused by other factors than an innate transmissibility advantage".

Image courtesy of @jburnmurdoch

"The contrast between very very low rates of the virus in early April, vs the sheer volume of cases imported from India, caused travel-linked clusters to have an outsized impact on overall rates," says Burn-Murdoch.

Tombs observes cases are still either flat or falling in other regions and that vaccine take-up will be an important consideration when plotting the pandemic's trajectory.

"Cases are rising sharply in cities such as Bolton, where take-up of vaccines has been below average," says Tombs.

Media reports on May 17 and 18 show the government was considering the reintroduction of strict local restrictions to contain clusters of Covid-19 outbreaks.

The Times reports officials have drawn up plans modelled on the Tier 4 restrictions introduced last year. Under the measures, people would be advised to stay at home and non-essential shops and hospitality would be closed if the new strain was not brought under control.

Image courtesy of Pantheon Macroeconomics. 

The deployment of localised restrictions could be a positive development if it contains cases in hot spot areas while allowing the rest of the country to proceed with exiting the pandemic.

"The government is more likely to respond to the situation in the North West by imposing local restrictions on economic activity than by reintroducing nationwide curbs," says Tombs.

Cabinet minister George Eustice did not rule out the prospect of local lockdowns being imposed in response to the Indian variant.

Eustice told Sky News the Government could not rule out some areas being held back as restrictions are eased elsewhere.

He said ministers still wanted the planned lifting of restrictions in England on June 21 to go ahead but "we can never rule out that there may have to be a delay"

In a Downing Street press conference on Friday May 14 Johnson said the country was in a race to vaccinate before the virus could start spreading in earnest once more.

Therefore the pace of vaccinations will be key.

The rollout has reached those in 35-37 bracket in England while it is also reported Wales would be in a position to offer a vaccine to all those aged over 18 within a fortnight.

"The boost to cases from Monday's further reopening will be countered by a pick-up in vaccination.... the seven-day rolling sum of vaccine doses has recovered to 3.6M, having dipped to 3.0M in early May. And the pace should rise further over the coming weeks," says Tombs.

Pantheon Macroeconomics hold a base-case assumption that nationwide business closures will be avoided this winter.