Would a delay to the 21 June unlocking derail the UK’s economic recovery?

Growing concerns about the spread of the Delta variant of Covid have reportedly prompted the government to consider delaying the full reopening date for the domestic economy.

The lifting of almost all remaining restrictions had been scheduled for 21 June but ministers are now apparently weighing up postponing the unlocking by two weeks to allow a further push on vaccinations.

The Financial Times has reported that the chancellor, Rishi Sunak, would be “relaxed” over such a delay.

But what would that mean for the economy? There have been multiplying signs of a strong bounce back in activity in recent weeks, as restrictions have been progressively lifted on sectors non-essential retail and hospitality.

Surveys have pointed to stronger than expected activity and most economists have been revising up their GDP forecasts for growth in 2021.

The average projection among analysts surveyed by the Treasury is for growth of 6.5 per cent in 2021, up from 5 per cent in March.

So would a delay to full unlocking risk derailing the UK recovery? Or would it be a minor blip?

The case for optimism can be found in the resilience of the economy during the most recent lockdown, which showed that businesses and consumers found ways to produce and spend despite restrictions.

In February the Bank of England expected UK GDP to contract by 4.2 per cent in the first quarter of this year due to the post-Christmas crackdown.

But the most recent official data suggests the decline was only 1.5 per cent, as firms were apparently able to continue serving customers despite the closure of many shops and severe restrictions on movement.

Some analysts think the impact of delaying unlocking would be similarly mild.

The independent economist Julian Jessop, who has long been bullish on the UK recovery, predicting 6 per cent plus growth well before the rest of the pack, remains confident.

“I don’t think a two-week delay would be a gamechanger, especially if for a specific purpose such as giving the remaining over 50s their second jab,” he says.

“For a start the economy is already rebounding strongly even with the restrictions still in place. And these restrictions by and large impact on social and family lives, rather than economic activity.”

Samuel Tombs of Pantheon Macroeconomics says the direct impact of delaying the 21 June unlocking by a few weeks would be too small to warrant revising his current 2021 GDP forecast of 6.7 per cent growth.

However, Mr Tombs stresses the danger to the recovery is not a delayed reopening but a resurgence of infections due to the more transmissible Delta variant.

“If virus cases continue to rise at their [roughly] 25 per cent week-on-week rate, then I think there will be a hit to consumers’ confidence and a growing reluctance once again to visit restaurants, pubs and shops,” he says.

“That would have far bigger implications for the recovery going forward.”

The National Institute for Economic and Social Research (Niesr) has a lower 2021 growth forecast than the consensus at 5.7 per cent.

“The possible emergence of a third wave, even if quite unlikely, seems to validate our prudent approach, because it means that even if the reopening is not delayed, significant uncertainty remains and uncertainty weighs on the recovery to some extent,” says Niesr’s Cyrille Lenoel.

As many have pointed out, the idea of a trade-off between virus containment and protecting the economy was always flawed since an uncontained epidemic would have resulted in massive economic disruption in any case.

Nevertheless, business groups are less comfortable than economists about the impact of a delay to the easing of restrictions later this month.

Kate Nicholls of UK Hospitality has warned that many pubs and restaurants are relying on a bumper summer to recoup some of their losses after their nightmare year and that even a two-week delay could push some over the brink into insolvency.

Wedding companies, conference organisers and nightclubs say they are in a similar predicament.

Mr Jessop accepts this possibility and says there would be a strong case, in those circumstances, for additional state support to such businesses, on top of the grants they have already received.

“This could be a small price to pay to ensure that the inevitable rise in cases when the final restrictions are eventually lifted does not translate into hospitalisations and a surge in demand for critical care,” he says.

Another signal that ministers are seriously considering a delay to the 21 June relaxation is the fact the Cabinet Office minister, Michael Gove, said this week that the government has an “open mind” on extending the furlough scheme, which is currently due to finish at the end of September.

Official statistics this week showed that there were still 3.4 million furloughed jobs in April.

James Smith of the Resolution Foundation says that if there were to be a delay in the reopening, a furlough extension would be entirely appropriate to help prevent a spike in unemployment.

“The end date for the scheme should be conditional on the state of the economy rather than being calendar based – and the chancellor should make that clear,” he says.

Given travel now looks set to continue to suffer under severe restrictions well into the second half of the year at least, it would also make economic sense to target the furlough support at employment in that sector.

However, targeting furlough is something the Treasury has resisted since the pandemic began, arguing that it would be too complicated and arbitrary.

The clear message for ministers is that if there is to be a reopening delay, it must come with the appropriate financial support package for businesses and workers.