Recovery becoming more tepid

With a whopping 1.0 million people on average having been asked by the NHS App or Test & Trace system to self-isolate in July, the “pingdemic” is likely to have stifled the economic recovery in recent months. In July, our Capital Economics BICS Indicator suggests that GDP did not rise much. But new virus cases have fallen substantially since mid-July and there are signs that the full vaccination of 75% of all adults has weakened the link between COVID-19 cases and hospitalisations. So we still think the economy will make good headway in Q3 and that monthly GDP will return to its pre-virus February 2020 level in October. However, it’s possible that virus cases start to climb again, which at some point could prompt the government to become worried about hospital capacity and respond by reimposing restrictions. That remains the biggest downside risk to our economic forecasts.