Economists anticipate a weak start for Britain’s economy, as the pressure from rising energy bills is pushing up inflation amid a resurgence of Covid-19 infections driven by the Omicron variant.

John Ashcroft

John Ashcroft, a lawyer and former attorney general in the Bush Administration, shared an article on the UK economy starting the year on the back foot, as coronavirus infections and a stricter restrictions driven by the emergence of the Omicron variant, cloud its economic outlook. This has come immediately after weak economic growth reported at the end of 2021, as businesses and households struggled to pay high fuel and energy prices that are pushing up inflation, along with worker and material shortages.

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Britain’s economic activity slumped due to the arrival of the Omicron variant, with more people choosing to stay away from work and government restrictions weighing economic growth. Economists predict that a sustained hit will lead to a fall in the GDP over the next few months of 2022.

Britain’s economy is close to recovering its pre-pandemic peak, at just 0.5% below its February 2020 level in October, despite official data showing that the country is lagging behind every other G7 country except Japan. The Organisation for Economic Cooperation and Development (OECD) suggested that the new Omicron variant would slow UK’s economic growth from 6.9% in 2021 to 4.7% in 2022.

Claudia Sahm

Claudia Sahm, economist and former director of macroeconomic policy at the Washington Center for Equitable Growth, and a section chief at the Board of Governors of the Federal Reserve System, shared an article on the Omicron variant and fiscal relief going to put downward pressure on inflation too, in the US, contributing to a messy economic outlook in January.

As the new Omicron variant pushes Covid-19 infections to new highs, policymakers predict prices to remain high through the middle of 2022, as supply chain disruptions gradually ease. However, they also believe that the new coronavirus variant could lead to new logistical snarls across the world, putting upward pressure on prices.

Deutsche Bank economists believe that the social and economic fallout from the Omicron variant is still uncertain, evoking fears of what the previous Covid-19 waves unleashed in the country, including reduced consumer spending, strained businesses, staff and material shortages, and global supply chain bottlenecks. However, the US economy has proven to be strong in tackling the pandemic-related challenges.

Rafael Domenech

Rafael Domenech, head of economic analysis of BBVA Research and professor of economics at the University of Valencia, shared an article on economists anticipating the slow winding down of the European Central Bank (ECB) bond-buying stimulus in contrast to other central banks scaling theirs back as the global economy recovers from the Covid-19 shock.

The ECB is expected to continue its net asset purchases for two more years, with about three-fourth of the 32 economists polled believing the ECB to stop expanding its $5.20tn bond portfolio in 2023. Many central banks have already begun reducing their monetary stimulus in response to the sharp increases in inflation. The ECB president Christine Lagarde had announced last month that its $2.09tn pandemic-response scheme would stop net bond purchases in March, while an older asset purchase scheme would be reduced by October 2022.

The US Federal Reserve, on the other hand, stated that it would speed the tapering of its bond purchases to end by March this year, while the Bank of England stated that it would stop its net purchases by the end of the year. Economists believe that the biggest risk for the eurozone is the continuing supply chain holdups caused by the huge Covid-19 infection rate, which is causing inflation to be higher, thereby forcing the ECB to reassess its policies.