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

The Daily Telegraph - Business - - Business -

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’

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