Boris Johnson's lockdown exit plan may see GDP return to pre-crisis level by Q1 2022

UK Prime Minister Boris Johnson’s "cautious" Covid-19 lockdown exit strategy could see gross domestic product (GDP) return to its pre-crisis level by the first quarter of 2022 – a much quicker rebound than expected.

With schools expected to reopen on March 8 followed by easing restrictions on non-essential shops, bars, restaurants and other forms of recreation from late spring, it could mean only a few movement curbs are still in place from July.

This path out of lockdown would result in a 2.3 per cent quarter-on-quarter fall in GDP in the first quarter, to about 9.9 per cent below its pre-crisis level, said Thomas Pugh, a UK economist at Capital Economics.

This would be followed "by rises of 3 per cent quarter-on-quarter, 4 per cent quarter-on-quarter and 2 per cent quarter-on-quarter in Q2, Q3 and Q4 respectively", he said.

“This would be enough to return GDP to its pre-crisis level by Q1 2022, a much quicker rebound than most expect.”

Mr Johnson’s lockdown exit strategy will see him gradually reopen the battered $3 trillion economy, supported by one of the fastest vaccine rollouts in the world as more than 17 million people have now received the first dose – equivalent to one-third of the adult UK population.

With more than 120,000 fatalities, Britain has suffered the world's fifth-highest official death toll from the pandemic and its biggest economic crash in more than 300 years.

Analysis for Channel 4’s Dispatches by the National Institute of Economic and Social Research (NIESR) indicates that the number of UK households living “in destitution” rose from 0.7 per cent of all households in 2019 to 1.5 per cent in 2020.

“As a result of lockdowns, levels of destitution seem to be rising across the country. But what’s terribly worrying is that in certain regions – in the north-west in particular – we might see some 4, 5 or 6 per cent of the population living in destitution,” NIESR’s director, professor Jagjit Chadha, told Dispatches.

However, Paul Donovan, chief economist at UBS Global Wealth Management, said Mr Johnson’s exit strategy along with the success of the vaccination programme would reduce fear of the virus before restrictions are fully eased, encouraging people to spend accumulated savings.

Markets started the week on a hesitant footing despite hopes for a positive reopening roadmap from Mr Johnson that could lift UK stocks “out of this current funk”, according to Joshua Mahoney, senior market analyst at online trader IG

“Value names have fared remarkably well in anticipation of Johnson’s roadmap, with firms like Cineworld, Restaurant Group, WH Smith, and Stagecoach highlighting the expectation that we will see some good news for the services sector and domestic travel,” said Mr Mahoney.

However, international travel still looks increasingly uncertain with only self-catered holiday lets and some hotels set to be allowed to reopen in April and UK staycations on the cards for July.

This would be another blow Britain’s aviation sector, which supports business and leisure tourism, as well as international trade and global supply chains that collectively contribute £120bn each year, the International Air Transport Association said.

Meanwhile, the pound held above the $1.40 mark on Monday ahead of Mr Johnson's news conference, after crossing the barrier for the first time since April 2018 on Friday, said Fawad Razaqzada, market analyst at ThinkMarkets.

“Much of the details have already been leaked, so the announcement itself is unlikely to offer any fresh impetus for the pound, unless there are some surprises in store," he said.

Mr Pugh said the faster-than-expected economic recovery means the pound could continue to strengthen to $1.45 this year.

He is also bullish on the prospects for UK financial assets, thanks to the surge in 10-year gilt yields from 0.32 per cent at the start of February to 0.66 per cent now, and the pound from $1.37 to $1.40.

“UK equities may re-join the party as more favourable valuations and greater exposure to the sectors that are likely to benefit most from the recovery, such as consumer-facing, energy and financial, suggests that they will rebound more rapidly than equities elsewhere,” Mr Pugh said.

Unemployment data, set for release on Tuesday, is expected to show the jobless rate rising to 5.1 per cent in the fourth quarter of 2020.

More than half of UK employers intend to recruit staff in the next three months, according to a new study from the Chartered Institute of Personnel and Development, with the strongest hiring intentions coming from the healthcare, finance and insurance, education and ICT sectors.

"Our findings suggest that unemployment may be close to peak and may even undershoot official forecasts, especially given the reported fall in the supply of overseas workers," said Gerwyn Davies from the human resources body.

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