Omicron’s arrival highlights how each wave of Covid-19 embeds structural changes in the way the economy works
Last modified on Thu 2 Dec 2021 12.28 EST
Christmas parties are being cancelled. Restaurants are reporting an increase in the number of diners’ no-shows. The first tentative signs of the impact of the Omicron variant on the economy are starting to emerge.
True, the relatively modest drop in the number of diners in the week up to 29 November might have had as much to do with the storm Arwen as with consumers taking fright at the possibility of a new wave of the pandemic.
But the anecdotal evidence is that a chunk of the population is risk-averse and does not wait for an official lockdown before adopting more cautious behaviour. That was the pattern in the past, and there is no reason to imagine it will change this time, despite the prime minister’s insistence that there is no need to cancel Christmas shindigs.
The government is keen to avoid harming the economy, but there will clearly be some short-term damage to the sectors least able to bear it, even if the Omicron variant proves to be less of a threat than feared. The hospitality, and bricks and mortar, retail sectors are in need of a bumper festive period after what has been a desperately hard couple of years. For some businesses, cancelled Christmas bookings will be the final straw.
Each new wave of the virus embeds structural changes in the way the economy functions. It is reasonable to assume that Omicron will be followed by other variants, so there will be more working from home, more online shopping, and a shift in spending from face-to-face services to buying goods.
This is a classic case of what the economist Joseph Schumpeter called creative destruction, and for the losers it will be a painful process. It may be years before the full effects of the pandemic become clear.
In the meantime, the likely shift in spending from services to goods will exacerbate supply-chain issues, adding to inflationary pressures. When news of Omicron broke, the knee-jerk reaction of financial markets was to assume central banks would delay tightening policy. That may prove not to be the case.
Pumped up petrol
Only last month, the price of oil was closing in on $90 a barrel and there was talk of the $100 mark being breached before too long. The speculation proved unfounded. A combination of factors – fears that rocketing prices would derail the global economy, tougher Covid-19 curbs in Europe, the release of oil from strategic reserves, and the arrival of the Omicron variant – led to a sharp fall.
There has now been a fresh fall in the price of crude following the decision by the Opec cartel and its allies to go ahead with January’s plans to increase production by 400,000 barrels a day. At one point after the news was announced, Brent crude was trading at $67 a barrel – almost $20 a barrel below its $86 October peak.
At which point, those filling up their vehicles with petrol or diesel have every reason to ask why they are not feeling the benefit. Retailers were quick to raise prices to around 150p a litre when the global oil price went up, but have been slow to bring them down again now the cost of crude has fallen.
According to the RAC, retailers are making 19p a litre profit compared with 6p a litre before the pandemic. That looks remarkably like price gouging.
It is fair to say the listing rules for companies wanting to trade on the London stock market rarely get pulses racing. There is, though, some significance in the shakeup announced by the Financial Conduct Authority.
Put simply, the watchdog is trying to make it easier for those who have started innovative companies to bring their businesses to the market sooner while also retaining sufficient protection against hostile takeovers.
The penny seems to have dropped that the London stock market is not the first port of call for fast-growing tech companies, which, if they list in Europe at all, increasingly favour Amsterdam. New York is where the real action is, with daily trading in Tesla on Wall Street worth more than three times the trades of the entire London Stock Exchange.
Writing in the FT, Paul Marshall, cofounder of hedge fund Marshall Wace, says UK fund managers would rather have a steady stream of dividends than high growth, and that the LSE is in danger of becoming a Jurassic Park. If Marshall is right, and trading volumes suggest he is, it will take more than changes to listing rules to restore London’s mojo.
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