Just when there seemed to be light at the end of the very long Covid tunnel, along came Omicron.
The new variant, although less likely to make you seriously ill, is far more virulent that previous iterations of the virus. It’s appearance, and measures being taken to counter it, has meant that you probably feel that we’ve taken a step back from the return to normality.
Here’s a summary of how the ongoing uncertainty around when lockdown restrictions will finally become a thing of the past is affecting the economy of both the UK and Australia.
Reacting to the Omicron variant
The positive news is that all variations of the vaccine can help protect you from the new variant. Additionally, a booster injection – effectively a third dose – can increase your protection levels even further.
In the UK, the NHS were able to react quickly to the new danger. With the national framework of vaccination centres still operative, they’ve so far been able to give more than 30 million people their booster shot.
This has meant that, if you’re living in England, you’ve avoided any further full, or even regional, lockdowns, with only minor restrictions around mask-wearing in shops and public buildings and on public transport. Harsher restrictions have been imposed in Scotland and Wales, but still nowhere near as stringent as you’d have experienced previously.
In comparison, Australia has been hit hard by the Omicron variant. Of the 1.1 million cases of Covid reported since the start of the pandemic, Reuters report that more than half came in the first 10 days of 2022.
Because of the comparatively slow rate at which the initial vaccine programme was rolled out, and lack of any national coordination, the rate of administering the booster is likely to lag behind the UK.
This could mean a delay in the ending of lockdown restrictions. It also means the continuation of the “Fortress Australia” policy of restrictions on movement in and out of the country – as tennis star, Novak Djokovic, recently discovered.
Omicron has slowed growth in the UK
From a global perspective, it’s likely that the spread of the new variant will hit economic growth during the first part of 2022. This is primarily due to so many people being forced to isolate and stay at home, thus affecting business productivity, at least in the short term.
Although the UK has avoided any severe lockdown restrictions, consumer caution has meant that the service and hospitality sectors didn’t get the big Christmas boost they were hoping for.
The strong recovery figures through the UK summer and early autumn did not continue into the last quarter of the year. There was more bad news in December when the Bank of England raised the bank base rate from 0.1% to 0.25%, thus increasing both business and domestic borrowing costs.
Inflation is forecast to reach 5% in the UK in 2022 and household fuel bills are set to rise sharply when the current price cap ends in April. UK analysts are predicting a “cost-of-living squeeze” on individuals and families that could last until 2023.
Omicron has also hit the Australian economy
The same forced isolation and the affect on the workforce and productivity is being felt in Australia.
The hospitality and tourist sectors still haven’t had the chance to recover since the start of the pandemic, and the new variant has hit them hard. On top of that, manufacturing and distribution have both suffered short-term hits. According to ABC News, transport unions report that half the workers in the sector have been forced to isolate because of the virus.
This has dramatically hit supply chains, resulting in empty shelves in many shops.
On the positive side, recent figures showed improved individual financial resiliency among Australians.
With big holidays and other consumer spending restricted, they have taken the opportunity to increase the amount in mortgage offset accounts. There has been a big jump in people getting ahead with their mortgage repayments, with the amount in such accounts up more than a quarter since the start of the pandemic.
However, the overall impact on the economy is likely to stall any recovery, with the knock-on effect of a reduction in GDP.
Given that, before the impact of Omicron was known, the government were projecting GDP growth of 4.5% in 2022, that’s a severe hit to future growth prospects in the short term.
There’s also a federal election due before the end of May, just to muddy the waters for the government and businesses even further.
Stock markets have remained resilient
One big positive from a personal finance point of view is that, in spite of the ongoing financial challenges over the past 12 months, stock markets have remained relatively resilient.
Investor confidence in Australia would appear to be high. As you can see from the chart, after a year of fluctuation, the ASX was up 28% in the 12 months to mid-January 2022.
It’s likely that the anticipated post-pandemic boom, fuelled by the release of two years’ worth of pent-up consumer demand and business investment could continue to drive markets higher.
In the UK, growth was slightly more sluggish, but the FTSE 100 still rose a healthy 13% in the same period.
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