With the development of the coronavirus vaccine, there had been light emerging at the end of the tunnel after a long and difficult year. After the worst year for growth since the Great Frost of 1709, the post-Covid thaw this spring seemed as if it was set to launch the UK economy into a roaring 2020s.
Now, clear signs are emerging that Britain’s economy will be hit hard by tougher restrictions needed to contain the surge in Covid-19 infections, fuelled by a new faster-spreading variant first identified late last year in southern England. Far from a boom in 2021, the economy is destined for a double-dip recession.
The new restrictions to contain the spread of the disease, including stay-at-home orders and the closure of schools under lockdown 3.0 in England, will heap renewed pressure on already struggling companies.
Faced with the extra restrictions, and rapid growth in coronavirus infections – which would have led people to voluntarily put their normal activities on hold in any event, exposing the false choice between lockdowns and allowing the economy to run free – the consultancy Oxford Economics expects gross domestic product (GDP) to fall by 4% in the first three months of 2021. This would follow an anticipated contraction in the final quarter of 2020.
The news comes after the UK had recorded a faster than expected recovery from the spring lockdown, spurred by the release of pent-up demand and the government’s “eat out to help out” scheme getting diners back into the embattled hospitality sector. That now feels like a long time ago, a remnant of a false dawn for the economy, as the UK fulfils the worst fears of critics who warned it was irresponsible to race back to normality.
In comparison with the spring 2020 lockdown, the restrictions at the start of this year will not be quite such a huge wrecking ball. As the whole of the UK ground to a halt in the first wave of infections, GDP collapsed by 20%, an unprecedented sudden stop.
This time around, businesses and households are arguably in a better position. Although they are now suffering from the cumulative strain of dealing with almost a year of Covid’s economic consequences, a playbook for how to work through a lockdown – for those that are able to continue trading – now exists, while economic support schemes from the government are already up and running.
However, the two big questions are whether enough money is available for those falling victim to the pandemic’s economic ravages through no fault of their own, and if the safety net launched last spring is adequate to carry the country through the latest chapter in the Covid nightmare.
In this regard, Rishi Sunak, the chancellor, has deployed an additional £4.6bn of funding for business grants, on top of the £280bn in emergency spending for the public sector, businesses, workers and households throughout the crisis so far.
But there were huge gaps in the system even before a double-dip recession was looming for struggling families and companies. With a 4% contraction expected in the first three months of the year – the sharpest plunge in history, save for last spring, and an even bigger economic collapse than the winter of discontent in 1978-79 – more must be done.
Gaps in the support system include the looming end of the £20-a-week uplift in universal credit benefits, as unemployment rapidly escalates towards 2.6 million, which will threaten poverty for thousands.
For companies, there are calls for an extension to business rates holidays and VAT reductions, as well as a commitment to keep the furlough scheme open longer than April, when it is planned to close, due to the time it will take to recover from a double-dip collapse.
Sunak intends to announce fresh measures to support Britain’s economy on 3 March when he holds the government’s next budget. With the onset of a double-dip, he will need to act much sooner to carry Britain through.
Saudis give oil price a shot in the arm
Major western economies may be returning to 2020 lockdown measures, but the global oil market is climbing to highs not seen since before coronavirus restrictions swept Europe.
The international benchmark price for oil, Brent crude, reached the $55-a-barrel mark for the first time since last February within the first week of the year. Oil market bulls may hope that prices inch higher as each new country begins administering vaccines.
But the real shot in the arm of global oil markets has less to do with Covid-19 jabs than the careful market choreography of the world’s largest oil-producing nations.
The Organisation of the Petroleum Exporting Countries (Opec) has spent the better part of a year mirroring the artificial collapse in oil demand with a similarly unprecedented drop in oil production. But now, oil exporters are considering their next moves as they anticipate the gradual return of the world’s appetite for energy.
Saudi Arabia, the de facto leader of Opec, surprised the world last week. While many petro-nations have been itching to pump more barrels of oil into the global market again, Saudi Arabia will unilaterally cut production by 1m barrels a day to keep prices afloat through the first months of the year.
The move has driven oil prices to 11-month highs. It has also helped paper over the cracks that have begun to emerge within the alliance between those energy ministers who favour a softly-softly return to higher oil output and those eager to line their countries’ hard-hit coffers with fresh oil revenues.
It may be enough to make oil market bulls forget that, for all the good news from Pfizer, Moderna and AstraZeneca, it is still a long road ahead for Covid vaccinations and a return to economic normality.
British bookies are becoming a jackpot bet for Vegas’s big casinos
Could Entain – the gambling firm that owns Ladbrokes and Coral – follow William Hill into the arms of a US suitor? Las Vegas casino operator Caesars paid nearly £3bn for William Hill last year. Now Entain has knocked back an £8.1bn proposal from MGM Resorts, also based in Sin City.
In a statement released on Friday, MGM underlined its intentions by revealing that shareholder Barry Diller, the media tycoon, had pledged $1bn to increase the percentage of the offer made up of cash.
This doesn’t change all that much. Under the City’s takeover code, MGM has until 1 February to make a firm bid and it will probably have to do a bit better than £8bn. But it’s clear that MGM isn’t just speculatively kicking the tyres: it has come to play.
Why are these Las Vegas high-rollers so keen on British bookies? The answer is that the likes of William Hill and Entain have something that the casinos of the strip do not: an online sports book already battle-hardened from years of competing in a mature market.
The US supreme court only legalised sports betting in 2018, and many states are still drawing up regulations. Early signs indicate that the opportunities are huge, with California alone likely to be a bigger market than the UK.
American casinos don’t have the luxury of time to build the technology and the expertise they need to establish a leading position. So far they’ve been willing to rent it via joint ventures with their Limey cousins. Now, like every good Las Vegas casino owner, they want it all.
MGM will argue that Entain won’t get a better offer, pointing to the fact that the two firms already operate a joint venture that would be hard for a rival bid to unpick. Entain will insist a better deal might be out there and that, anyway, it has enough growth potential outside the US to go it alone.
But MGM surely has plenty of ammunition left. Much now depends on how far the company and deep-pocketed backers such as Diller are willing to raise the stakes.
Aviation is the latest sector to endure a belated Covid U-turn
Finally, the government has announced that all inbound travellers to Britain will need to be tested for Covid-19; a move that has not yet quite closed the stable door after the horse has bolted, but merely signalled its planned closure sometime this week – some 10 months after the first widespread calls for border checks.
On public health grounds, few would disagree with the need for tests – including most of the aviation industry. Business strife obviously pales beside the immediate public health emergency. Among those who have ventured abroad in recent months, there has often been incredulity at the absence of checks at the UK border, compared with the measures taken by other countries – let alone those island nations that have almost eradicated the virus, rather than propagating new variants.
But for some of the UK airlines and airports brought to their knees – once genuinely world-leading, rather than merely posturing as such – there will be immense frustration that their own calls for harmonised pre-departure testing, with global standards, appear to have fallen on deaf ears for so long. What has now been brought in as an emergency measure would have been better applied earlier with care and coordination.
A coordinated international approach may not be in the gift of the UK government, even one minded to do so – but as statements from Heathrow to inbound tourism organisations make clear, there is precious little trust that ministers have paid attention to the experience and concerns of those at the sharp end.
In the context of U-turns and failures in the pandemic, aviation can console itself that it is not alone. Frustrating, belated and imperfect though the current policy now is, it is essentially correct and will give more certainty than than the pantomime of in-out travel corridors. Unfortunately for aviation, the only conclusion for many airlines will be to ground their fleets again.
