Long, dark winter awaits for city centres left on the fringe
A new stay-at-home edict could be too much for many hospitality firms to take, writes Tom Rees
Operation “Save Pret” is back in the fridge. Office workers barely got their feet back under their socially distanced and sanitised desks before being sent back to spare bedrooms.
Michael Gove confirmed that Britons are once more being told to work from home if possible – a “shift in emphasis” rather than a screeching about-turn, the Cabinet Office Minister claimed.
The Prime Minister held off from the most economically damaging options put on his desk as a second wave of Covid cases takes off. But economists warn even these minor restrictions threaten a recovery still facing the “hard yards”, as Bank of England Governor Andrew Bailey put it yesterday. And Boris Johnson’s new measures could just be the first step.
“We struggle to see how the economy can grow in the fourth quarter with escalating lockdown measures, fading stimulus and uncertainty,” warns Robert Wood at Bank of America.
He argues that the UK has gone past the point “where the economy is reopened as much as feasible subject to keeping Covid cases from increasing exponentially. Eking out further growth with tighter restrictions than in the third quarter seems like a big ask to us.”
Paul Dales, at Capital Economics, adds that a 10pm curfew on restaurants and bars and another home-working push could mean GDP does not rise at all in October, November or December.
Extending the shift to home working does not just hamper chains like Pret A Manger but also the pubs, restaurants, retailers and transport used by office-based workers. The biggest city centres that have lagged well behind in the recovery are likely to be put under renewed pressure, while the 10pm curfew will also dampen activity in nightlife hotspots.
The new measures could be too much for many hospitality firms to take and also raise the risk of a more permanent move out of city centres.
And the events and sports industries will have to wait even longer for some relief after plans to reopen next month were called off.
The economic damage will be limited by the Prime Minister opting for lighter restrictions to curb the surge in cases but the new measures could also negatively impact behaviour. Consumers and businesses could turn cautious again, holding back spending as cases rise and the economy suffers more turbulence.
“While many restrictions do not prevent business from being done, they will act as a deterrent,” says Allan Monks, a JP Morgan economist. He adds the measures “are likely to mean that confidence in going out and undertaking social forms of consumption remains low”.
While the economy hawks in the Cabinet appear to have won the argument against the health doves for now, more damaging restrictions could be on their way if cases continue to surge. If Johnson’s lighter touch does not work, the closure of some consumer services seems almost inevitable, even if just for a two-week “circuit break”.
That would ramp up the pressure on a sector hardest hit during the first lockdown and still operating well below pre-virus levels.
“The Government might have no choice but to resort to ordering businesses to close across the UK again,” says Samuel Tombs at Pantheon Macro.
He says shops were not shown to be “major incubators for the virus”, but notes cases only started to rise when pubs, restaurants and other consumer services reopened. “The most logical first step, therefore, would be to force these businesses to close again.”
Tombs estimates that another closure of consumer services businesses would push GDP to 15pc below pre-Covid levels as long as it lasted, compared to a 5pc shortfall without the restrictions.
Meanwhile, a national “circuit break” lockdown lasting two weeks would cut fourth-quarter GDP by three percentage points, Wood warns.
The second wave is unlikely to be as economically damaging after lessons were learnt from the first. The factories and construction firms that closed last time are more likely to remain open under socially distanced guidelines, while office-based businesses are better prepared for home working with many still yet to bring employees back.
However, the new restrictions could be just the first bump in the road to recovery during the colder months. The risk of stop-start restrictions that set back the economy numerous times could persuade firms to hold back investment and push other businesses over the edge.
The Prime Minister is keeping his most damaging restrictions in the back pocket for now – but it could be a long winter for the economy.
‘We struggle to see how the economy can grow in the fourth quarter with escalating lockdowns’