Chart of the week: UK COVID-19 – a pproaching the moment of truth

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● Crucial phase ahead: From the start of the pandemic in early 2020, the world has eagerly awaited the day when mass vaccination can turn the tide on SARS-CoV-2. For the UK, one of the worst-hit countries in the advanced world, that day could soon be approaching. Within weeks, the UK will have delivered at least one dose of vaccine to the most-at-risk groups. With luck, the UK can start easing restrictions from March onwards with the confidence that, even if cases started to edge up again, vaccination of the most-at-risk cohorts should prevent a serious surge in hospitalisations and deaths.

● Derisking the vulnerable: To the old and to those with underlying illness, COVID-19 is especially unforgiving. NHS England data shows that 96% of COVID-19 deaths in English hospitals were people with pre-existing conditions while 93% of deaths affected people aged 60 or above (60-79 year olds account for 38% and 80+ for 55%). Based on the previous five-day vaccine pace, the UK is on track to vaccinate all people over 60, plus frontline healthcare and social workers, as well as ‘at risk’ individuals under 65 by mid-March – a total of 27m. A further acceleration of the vaccination pace can bring that date forward. 15m people in the very top priority groups will likely be inoculated with at least one dose by mid-February.

● Turning the tide on COVID-19: Three positive factors will coincide in the coming weeks: 1) continued lockdown progress – based on the recent five day average, recorded infections could be at summer 2020 levels within two weeks; 2) the advent of spring and warmer weather by mid-March should bring with it the normal remission of seasonal respiratory viruses; and 3) vaccination of all high risk groups by mid-March – vaccines can take two weeks to trigger immunity.

● The pressure to reopen: Heading into March, the government will come under immense pressure from its backbenches to ease restrictions. Once high-risk groups are protected, the huge economic, health and social toll of COVID-19 containment policies will play a bigger role in the UK’s pandemic policy decisions. Beginning with schools and non-essential shops, we expect the UK to start the stepwise reopening process by mid-March.

● Test case: Other countries currently enduring lockdowns – especially in Europe – will watch the UK example closely. With its large, dense population and cold north Atlantic climate, the UK provides a useful gauge as to whether mass inoculation offers the crucial breakthrough against the virus and its mutations. If all goes well in the UK, it will raise the hope that other countries can enjoy similar relief once they make sufficient progress with mass vaccination.

● The second moment of truth: We expect UK economic activity to begin to rebound from its current slump from March onwards as restrictions are eased, before gathering serious pace during the second quarter of the year. By summer, almost all of the economically significant restrictions are likely to be lifted – perhaps with some exceptions such as public events at full capacity. After that, our base case for a continued recovery hinges on the assumption that further vaccine progress will prevent the return of harsh restrictions or lockdowns even as more virus mutations may appear over time and cases edge higher again during winter 2021.

Holger Schmieding

Chief Economist

+44 20 3207 7889

holger.schmieding@berenberg.com

Kallum Pickering

Senior Economist

+44 20 3465 2672

kallum.pickering@berenberg.com

Florian Hense

Senior European Economist

+4420 3207 7859

florian.hense@berenberg.com

Disclosures

This material is intended as commentary on political, economic or market conditions for institutional investors or market professionals only and does not constitute a financial analysis or a research report as defined by applicable regulation. See the "Disclaimers" section of this report.

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