In late 2021, a new variant of the deadly coronavirus was discovered in the UK, named omicron. By January 2022, the new strain had fully taken hold in the UK a cases shot up to 208,472. Despite this, the UK government refused to introduce any previously seen lockdown measures. The outcome of this decision has caused coronavirus cases to increase substantially, as shown by the graph below:
By the 11th of July 2022, cases had reached a staggering 349,773, an approximate increase of about 200,000 from the July of last year. This is due to both no lockdown measures, as well as the high transmission rate of the omicron variant. However, omicron is a unique variant in the way that it has a low virulence when compared to other strains of coronavirus. Therefore, the low virulence, as well as the high transmission rate, have had very unique effects on the economy, these being both large staff shortages, mainly in the hospitality sector as well as the airline sector, and rising demand contributing to the rise of inflation.
At the start of 2022, many hospitality leaders were feeling confident about market conditions, 66% were confident about the next 12 months and up to 59% were confident about the market in general, however, the rise in omicron has seemed to dent this optimism. Due to the high virulence of omicron as well as the effects of long Covid staff members have been unable to return to work, with the number of unfilled vacancies around 15%. This has resulted in 45% of businesses reducing trading hours and a third have had to close for at least a day. This in turn is not only having a negative effect on the hospitality industry’s profits but on the growth of the economy as a whole.
It's not just the hospitality industry feeling the effects of the new omicron virus, airlines are also feeling the effects. For the past few weeks, airlines have been struggling with large-scale strikes, with staff absences caused by omicron placing a greater strain on top of this. Therefore, airlines have been unable to keep up with the large rise in consumer demand, leading to many flights being delayed and some being cancelled entirely.
In the past few months, inflation in the UK has risen substantially, with wages being unable to keep up, creating a cost of living crisis. Many economists put this down to three factors, A global supply shortage, the rise of energy costs caused by the Russian invasion of Ukraine, as well as a large increase in consumer demand as Covid restrictions were relaxed. Therefore, it is uncertain the effect that the omicron virus has had on this rise in inflation, but it is possible it has made inflation worse through consumer demand and the global supply shortage.
Chief economist at US National Retail Federation, Jack Kleinhenz recently said “people who stay at home because of the variant are more likely to spend their money on retail goods rather than services like dining out or in-person entertainment” which in turn, he said “would put further pressure on inflation since supply chains are already overloaded across the globe.” Due to this rise in consumer demand for retail goods, supply chains will be forced to increase the price of the goods they sell to businesses. In turn, these businesses will be forced to increase their price for the consumer, causing inflation to increase.
Even with the rise of omicron, many business leaders remained confident that the market would remain strong and there wouldn’t be a repeat of what we saw in the early stages of COVID-19. Even though these predictions remained largely true, confidence was still reduced by a large number of staff absences as well as a rise in inflation. However, it may be a possibility that the rise of omicron is playing a smaller role than we expect, with factors like work strikes as well as rising energy costs playing a much larger role than omicron. Still, it would not be in the government’s or the public’s best interest to underestimate the effects of omicron as we have seen first-hand the problems this virus can cause.
Edited and reviewed by Tanish Bagga.
References / Wider reading:
Zoe editorial staff, Tim Spector, 2022, What we know about the Omicron COVID-19 variant so far, https://health-study.joinzoe.com/blog/new-omicron-variant#whats-the-latest-news-on-omicron
UKHOSPITALITY, CGA, 2022, Future shock issue 10 – hospitality in 2022, https://www.ukhospitality.org.uk/general/custom.asp?page=FutureShock-IssueTen UKHOSPITALITY, 2022, Hospitality sector recovery stymied by labour shortages rising cost, https://www.ukhospitality.org.uk/news/611116/Hospitality-sector-recovery-stymied-by-labour-shortages-rising-costs.htm
Justin Tallis, 2022, Omicron, mild or severe impact on the economy?