Tackling the covid ‘fear factor’ is key to economic recovery
The Bank has called this phenomenon the “fear factor” which indicates that there is no trade-off between saving the economy and saving lives when it comes to the pandemic, writes Maria Busca. | PA Images
With the coronavirus pandemic seeing a pick-up across Europe, understanding how to tackle fear is key to the recovery.
The Bank of England has said their projections for economic recovery, published on August 6th, were based on unusual uncertainty over health risks gradually declining, both in the UK and globally.
Interestingly, recent research has shown that government lockdowns are only responsible in small part for the reduced spending.
For example, a paper on the US economic activity shows that the Government’s policies restricting business operations and personal mobility were less important than the consumers’ self-imposed limitations in contributing to the decrease in footfall in individual businesses. Moreover, they found the drop in consumer foot traffic was highly linked to the number of deaths in the county.
The Bank has called this phenomenon the “fear factor” which indicates that there is no trade-off between saving the economy and saving lives when it comes to the pandemic.
Applying the same logic, as the economy reopened, one would expect this psychological factor to play a key role again.
As long as fear remains high and Covid deaths are still registered, consumers are expected to refrain from social spending, which involves interacting with others and accounts for 13 percent of total output in the UK.
Indeed, although data shows that retail sales have been recovering quickly, with sales by value increasing by 3.2 percent in July compared with the same month last year, social spending has dipped more dramatically and has been recovering more timidly.
With the epidemic seeing a pick-up in Europe and probably also in the UK, understanding how to tackle fear is key to the recovery.
How fearful are Brits?
Asked what the main issue facing the UK is, most Brits have identified ‘health’ as the key challenge since March. But from June this figure has been declining, with the economy now becoming almost as big a challenge as health.
This reflects the impact the crisis has been having on the livelihoods of people, with increased uncertainty and a rising wave of unemployment.
However, the two concerns cannot be viewed in isolation of one another.
The percentage of people worried of catching the virus has been stable since the end of May, hovering just over 45 percent. Research commissioned by the Greater London Authority shows the biggest barrier to going to restaurants, bars and non-essential shops is fear of infection.
Moreover, only 34 percent of office workers are back to their desks in the UK, according to a study by Morgan Stanley reported in the Times, arguably partly a reflection of fear over
Fear is not so easy to tackle
Some obvious measures to make people more comfortable can be found in the public responses to surveys.
For instance, when Londoners were asked what would encourage them to return to life as normal, the most common answers were: fewer crowds, more people wearing face coverings and clearer advise on rules.
The effectiveness of the measures depends on the public’s awareness.
A poll conducted at the end of June showed that the public was not clear about government advice on socialising, work and travel, with 41 percent feeling unclear on who they can socialise with, 44 percent on how to work safely and 46 percent on where they can travel.
Furthermore, measures can only be effective if they are underpinned by confidence that others are respecting them, as well as that the epidemic is under control.
Public confidence in the Government is therefore key, but according to a UCL study, it has remained low since the revelation of Dominic Cummings’ trip to Durham. This is arguably a bigger challenge for the Government than introducing measures like the above.
Some, including Simon Wren-Lewis and Independent Sage, have called for more radical approaches in England such as an elimination strategy akin to New Zealand, but also Scotland and Northern Ireland.
Others, including Labour, have called for an effective test, trace and isolate system in England, with data showing that potential contacts of those infected leak out the system at different stages.
With this in mind, the Government announced improvements to the system, with local authorities now stepping in when those tested positive or their contacts cannot be reached by the centralised tracers.
Data on the recovery has so far been encouraging, but the foundation is fragile. Fiscal policies have been and remain essential, but only credible and effective control of the epidemic will quash the public fears.
Maria Busca is the Dods Political Consultant for financial services.
August 20th: ONS publishes new data and experimental indicators on coronavirus, the UK economy and society.
August 20th: Review of Welsh and Scottish coronavirus restrictions due
August 22nd: Welsh coronavirus regulations relaxed to allow up to four households to join together in order to form a single extended household; new rules will allow a meal following a wedding, civil partnership, or funeral, for up to 30 people indoors if social distancing can be maintained.
August 23rd: UK test and trace - Serco and Sitel's respective contracts with the UK Government to operate COVID-19 test and trace centres are up for renewal.
August 24th: Scottish coronavirus restrictions – live outdoor events resume
September 10th: ONS publishes monthly estimate of UK GDP
TBC September: British Chambers of Commerce Quarterly Economic Forecast