Sunday, March 28, 2021
Europe's third wave will not derail the recovery
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

Boris Johnson is famously said to be an admirer of the mayor in the Jaws, who kept the beach open despite the shark, though that has not been reflected in his lockdown strategy. And, as the promotions for that film said, just when you thought it was safe to go back into the water … something big and scary looms into view.

The third wave of coronavirus in Europe, or more properly the second wave seen in the UK in recent months, with the “English variant” running amok across the Channel, is the new danger. The prime minister, in words reminiscent of previous change of strategy, has warned that “previous experience has taught us that when a wave hits our friends, I'm afraid it washes up on our shores as well”.

Taken together with the fact that, while deaths and hospitalisations as a result of Covid are still falling sharply, daily case numbers appear to have plateaued or are increasing slightly. Is this a reason to worry? Could the roadmap be torn up, hampering this year’s expected strong economic recovery?

There have been false dawns before. Lockdowns 2 and 3 came after reassurances from the government that it would do its best to avoid further lockdowns. Such reassurances probably delayed action last September, to deadly effect. This time, however, it is different.

It is different this time because the vaccination programme makes it much more difficult to justify another lockdown. If vaccines are effective in preventing hospitalisations, which they appear to be, and if those most likely to be hospitalised are inoculated, as they will be quite soon, it will be hard to use the “protect the NHS” slogan again to justify another lockdown.

The only circumstances in which it could be justified would be the emergence of a variant that vaccines do not protect against. In the absence of that, further lockdowns look politically very difficult and, while you can never say never, unlikely.

This is not to say I have any sympathy with lockdown sceptics, still less the sad characters who go on anti-lockdown marches. Yes, lockdowns have damaged the economy and disrupted lives, but the damage would have been far greater had the virus been allowed to run out of control. I have even less time for the innumerate loons who question Covid-19 deaths and try to argue that it has been a fuss about nothing.

Even with social distancing, restrictions and lockdowns, more than 148,000 people have died in the UK with Covid-19 on their death certificate and more than 133,000 where it was the main cause of death. The coronavirus has reversed, temporarily we hope, many years of declining mortality. The crude mortality rate last year was 14 per cent above its average for the past 10 years, while the age-standardised rate was eight per cent up on its 10-year average.

The 608,000 total for UK deaths last year was the highest since 1918, another pandemic year, when the population was a lot smaller, and only one of two years to break the 600,000 level. Al this would have been a lot worse without restrictions as, most likely, would have been deaths from flu. Covid deaths, sadly, did not stop at the end of 2020.

Though further lockdowns are unlikely - even if some restrictions will remain in place, including on international travel, for quite a long time – the likely absence of lockdowns is not the only reason to be optimistic about recovery.

We have, as I have noted before, got better at adapting to restrictions. The falls in gross domestic product (GDP) in November and January were a fraction of what we saw in April last year. We also adapt during lockdowns. The latest rapid indicators from the Office for National Statistics, covering the period until a few days ago on everything from debit and credit card payments to traffic and job advertisements, show a continued recovery from the lows of January.

The Recruitment and Employment Confederation (REC) says that the two latest weeks have seen the largest number of new job adverts being placed since the start of the pandemic, a combined total of more than 300,000 over two weeks.

This upward economic momentum, absent in January and February last year, when the economy was limping even as we went into the coronavirus, is important. It is most evident in the latest “flash” purchasing managers’ surveys, which measure business-to-business activity and track GDP pretty well.

The flash UK purchasing managers’ index (PMI) for March showed a jump to 56.6, from 49.6 in February, with both services and manufacturing posting index levels well above the 50 level which marks the difference between expansion and contraction.

As Chris Williamson, chief business economist at IHS Markit, which produces the data, put it: “The UK economy rebounded from two months of decline in March, with business activity growing at its fastest rate since last August as children returned to schools, businesses prepared for the reopening of the economy and the vaccine roll-out boosted confidence. Companies reported an influx of new orders on a scale exceeded only once in almost four years, and business expectations for growth in the year ahead surged to the highest since comparable data were first available in 2012.”

This bodes very well but what about the plight of what the prime minister calls “our friends in Europe”? Will not renewed restrictions in our biggest trading partner, including an Easter lockdown in Germany and partial lockdowns in large parts of France, inhibit the UK recovery.

Here again, the message from the purchasing managers’ surveys was reassuring. Germany, with a flash PMI of 56.8, showed services doing well and manufacturing powering ahead, with the highest reading on record. The eurozone as a whole returned to growth last month.

France was slightly below par, with a PMI of 49.5, though the official business climate index, from the French statistical agency INSEE, showed a strong improvement. Across Europe, as In the UK, consumer confidence has risen strongly, in spite of the slow vaccine rollout.

Just as this has been anything but a normal recession, as discussed here last week, so it will not be a normal recovery. There were 4.7 million people on furlough at the end of February, and their re-entry will be a challenge, but the latest labour market statistics were encouraging, showing the unemployment rate slipping to 5 per cent.

The recovery in prospect is, of course, all about making up the lost ground of the past year as restrictions are lifted. There is no reason to believe it will not happen.