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The effect of Omicron on the UK economy

The effect of Omicron on the UK economy

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The UK’s recovery from the coronavirus pandemic has been anything but linear and this can largely be attributed to the emergence of new strains of the virus.

The first strain to affect the nation’s economic momentum was the Delta variant, which delayed the UK’s planned roadmap out of lockdown. The extension of the UK lockdown was prompted by the fast-spreading nature of the strain, which made it more contagious than the Alpha variant.

Despite the delay, England lifted all of its COVID-19 restrictions on the 19th July 2021, and the UK economy was finally able to begin to recover from the effects of the enforced recurrent lockdowns.

However, in South Africa on November 9th, a new variant of the virus emerged — Omicron. This new strain first arrived on UK soil on November 27th, sending the nation into panic, with concerns over whether the vaccinations would work effectively against it.

The whole coronavirus pandemic has significantly impacted the world’s economies, and is an unprecedented factor that has caused the value of the British pound (GBP) to fluctuate.  

This article will take a look at the Omicron variant specifically, and how it has impacted the UK’s economic health, to help you to gain a better view of how the GBP could fair this year.  

Understanding the factors which impact forex trading

There are a range of events and factors that can affect the price of a currency pair. As part of an introduction to forex trading, it’s important to understand how these variables could affect your position in the market.

These can include, but are not limited to:

  • Elections and political events
  • Interest and inflation rates
  • Gross Domestic Product (GDP)

The coronavirus pandemic is an example of an unprecedented event which significantly effects the forex market. With recurrent lockdowns in the UK, and a rise in inflation, this has also impacted the value of the GBP.

The government’s response to the omicron outbreak

When the virus first hit the UK, Boris Johnson made the decision to hold off with the implementation of a national lockdown, until the country had more data regarding the strain’s severity.

This choice enabled the UK to maintain economic momentum in the run-up to Christmas, which is the busiest time of the year for many businesses.

As the strain spread, it was clear that the effect of the variant was far less severe than previous strains, and the vaccines administered to most nationals, were effective in fighting the virus.

In response, the government decided to implement their ‘Plan B’ restrictions on December 10th, which included:

  • Working from home where possible
  • Face coverings to be worn in most public indoor venues
  • Vaccination passports needed to attend many events

The virus’ impact on the UK economy

The variant had a considerable impact upon the UK economy, because of its highly contagious nature. At the end of December, there had been a total of 246,780 cases of Omicron in the UK.

However, the government took a different approach to dealing with this variant, as despite the fact restrictions were enforced to deal with the spread of the virus, these rules did not have a significant impact on the way that sectors of the economy could function.

The biggest disruptions to the UK’s economic momentum since the beginning of December was the fact that so many people were testing positive and therefore, were having to isolate, unable to attend work.

Experts believe, as a result of the Omicron outbreak, the UK economy will likely be in a weaker state in February 2022 than it was in February 2020. However, with transmission rates falling and the government lifting all plan B restrictions, economic activity should begin to pick up throughout February and March — in turn having a positive impact on the British pound.  

Omicron and the continued effects of coronavirus on the economy have continued to show the disparities between the north and the south of the UK, with the north experiencing a greater impact to both its economy and services. It is clear that more needs to be done to address these disparities if the country is to recover economically as a whole. Some proposed solutions include North East devolution, community intervention projects, and local authority funding towards health and education services.

If you’re considering investing in the forex market, and the pound in particular, then you’ll likely be monitoring the economic health of the UK, since this is a primary factor that affects a currency’s value.

Successful trade in the forex market will require you to stay up to date with the latest news releases, study a combination of fundamental and technical analysis, and use an economic calendar, to plan ahead for key events in the year that could impact your position.

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