New lockdown weighs on UK economy

British Prime Minister Boris Johnson and members of his government risk significant political damage for their decision to introduce extremely tough restrictions on London and parts of the southeast England and withdraw a significant part of the social accommodations they had announced for Christmas gatherings. Yet as Johnson said in a widely watched briefing to the nation, “when the science changes, we must change our response.” The consequences will be felt well beyond politics, social interactions and mental wellness. They will also play out in an economic outlook that is likely to deteriorate both in scale and scope, nationally and globally.
The cause for the lockdown is the identification of a new variant of the Covid-19 virus. This strain is
said to spread much faster and already accounts for more than 60% of new infections in London. As such, and again quoting Johnson, “when the virus changes its method of attack, we must change our method of defense.”
The new variant may also raise questions about treatments and herd immunity even as remarkable progress is made on vaccines. There is yet no convincing evidence, one way or the other, on whether the new variant alters the course of the disease.
Nor is there compelling evidence, either way, of whether it changes immunity responses.
The immediate economic impact will be an even bigger contraction as more people are less able — because of stricter restrictions — or willing — because of greater health concerns — to interact economically.
This more pronounced double-dip recession for the UK increases the risk of “scarring,” in which short-term problems become longer-term structural impediments to dynamic supply and demand responses.
The new variant also sheds a much brighter spotlight on another issue — that of tighter restrictions on the internal and cross-border travel of people and, perhaps, also some goods.
With four tiers of restrictions in operation throughout England, will the government confront a decision within the next few weeks between tightening restrictions within the existing regime or perhaps imposing a third nationwide lockdown?
And how will other countries react to a new variant? Will they follow the earlier examples of Australia and New Zealand and effectively close their borders to non-citizens?

—Bloomberg