Kavan Choksi: Will Omicron Variant Slow Down UK's Economy Bounce Back?

The UK economy has regained ground lost during the early phases of the Covid-19 outbreak after a year and a half. National output is presently 0.7 percent greater than in February 2020, and Kavan Choksi believes it is thanks to better-than-expected performance in November. However, the UK has undergone a V-shaped recession, with a sharp decline in activity in March and April 2020 followed by a swift rebound even if periodically interrupted.

Kavan Choksi believes the nature of the COVID shock explains this tendency. Governments implemented lockdowns to stop the virus from spreading, and once they lifted the restrictions, businesses reopened, and economies recovered. Additionally, during the financial crisis of 2008-09, the UK economy declined by less than it did in 2020, but it took far longer to restore lost territory.

The economy is smaller than it would have been if the epidemic had never happened. In the coming months, Kavan Choksi believes it will be a significant question whether it can return to its pre-COVID trajectory or whether the output will be permanently lost. The Office for Budget Responsibility and Bank of England expects COVID-19 to leave some scars, even if there are decreased projections of long-term damage over the past 18 months due to the labor market's resiliency.

Moreover, Kavan Choksi believes the introduction of Omicron has added to the confusion. Furthermore, because of extensive employee absences, the government's plan B limits, and individuals being more cautious, January has been another difficult month. As a result, experts predict the economy is likely to slip below its February 2020 peak. However, if the government in England decides to lift limitations later this month, the output will rebound in February and March as projected.

In addition to this, Kavan Choksi also believes a double whammy will strike the economy in April: skyrocketing energy costs and rising taxes. In light of these factors, there may be one step forward and one step back, which is typical of the UK economy.