Vaccine Rollout and Four Steps to Freedom
Some aspects of the UK’s government’s handling of COVID has attracted criticism over the past 11 months. However, in one specific area, the government has excelled. More than 19 million people have received their first shot of the vaccine (over 28% of the population), a roaring success compared with most other developed economies, as shown by the graph below.
Graph 1: COVID-19 Vaccination Rates by Percentage of Population
Source: World Health Organisation, data as of 19.02.2021
Crucially, vulnerable groups have received the lion’s share of distributions this far, leading to a sharp reduction in the number of COVID-related hospitalisations and fatalities.
The government’s strategic decisions on vaccine negotiations and delivery are now paying dividends and, all being equal, dramatically increases the chances of some semblance of normality returning to these shores before most other developed market economies.
In that vein, we now have a detailed and considered roadmap for the easing of lockdown restrictions. We provide the details of the roadmap below and look at how investors reacted to the news.
Before we outline each of the four steps, one crucial consideration to note is the government’s continued caution. The government has attached caveats for each progression to a full reopening of society. Before moving to each step, the government will appraise how relaxations impact public health based upon the following data:
- continued success of vaccine deployment programmes;
- vaccine efficacy in reducing hospitalisation and deaths;
- how infection rates respond; and
- the risk of new COVID variants.
Each step will last a minimum of five weeks; the first four weeks for data appraisal, followed by one week’s notice of further easing of restrictions. The four steps are described below.
1) The first step for easing lockdown in England comes in two phases. The first, commencing on March 8th, will see:
- All schools in England reopen.
- Care home receiving one regular visitor, subject to testing and wearing PPE.
- Outdoor recreation (picnics, for example) for support bubbles and single households resume, and the option of meeting one person outside their household.
- Some university classes returning to face-to-face learning.
The second phase of step one will see additional relaxations from March 29th, when most English schools commence Easter half-term. Accordingly:
- Outdoor gatherings of six people or two separate households will commence.
- Outdoor sports facilities can reopen, and formally organised outdoor sports can resume.
- Stay at home restrictions will end, but overseas travel remains impossible.
2) The government envisages step two, beginning by no earlier than April 12th. Further relaxations envisioned include:
- Non-essential retail, and other services such as hairdressers, can reopen. Libraries and other public buildings will reopen.
- Outdoor attractions such as zoos and theme parks will reopen, subject to preventative measures to stop different households’ mixing indoors.
- Indoor leisure facilities such as gyms and swimming pools can reopen, but with interactions limited to members of single households.
- Hospitality businesses can resume commercial activity for outdoor customers.
- Funerals and weddings can resume with some limits on attendees.
3) The third step will begin no earlier than May 17th:
- Most social distancing requirements for outdoor meetings will be removed, although gatherings of over 30 people of more will remain illegal.
- The rule of 6 will apply for indoor meetings or two households.
- Cinemas and other entertainment will reopen, and exercise classes can resume indoors.
- The numbers allowed to attend funerals and weddings will increase.
- Larger performances and sporting events in indoor venues with a capacity of 1000 people, or half-full, will be allowed. For outdoor venues, capacities of 4000 people will be allowed.
4) Assuming all preceding steps are met by June 21st, the fourth step will involve:
- The removal of all legal limits on social contact.
- Reopening of nightclubs and the removal of restrictions on large spectator events.
- Reassessment of wedding attendee numbers.
Investors have awaited guidance around reopening with anticipation to gauge the pace and timing of economic recovery. Currency markets are a good indicator of market views around each economy’s respective outlook. The earlier an economy exits lockdown, upward pressures will exert on interest rates, which results in a stronger currency.
The graph below shows how sterling reacted in response to the announcements of easing restrictions by looking at two separate currency pairs; sterling versus the US dollar and sterling vs the euro. With Brexit largely concluded, sterling has experienced something of a resurgence during the first eight weeks of 2021, and the announcement this week builds on that progress.
The graph shows that the value of sterling relative to the euro and dollar increased this week, beginning with a valuation of €1.15 and $1.39, respectively. A gradual rise during Tuesday is evident, with sterling reaching $1.4117 (its highest level in nearly three years) by the end of trading on Tuesday. Similarly, the sterling rose to €1.162 against the euro by close of play Tuesday.
During Wednesday’s trading, both currency pairs experienced further advancement, reaching intraday highs of €1.17 and $1.42, respectively, represented by the spikes on the graph. Treasury hints on the continuation of COVID furlough schemes in next week’s Budget further bolstered the currency. The thinking here is that avoiding permanent damage from individuals losing their jobs will ensure a better chance of recovering faster.
Graph 2: Value of Sterling vs USD and Euro
Source: Bloomberg, data as of February 24th, 2021
The vaccine’s importance to a resumption of economic normality is highly prized and is reflected in foreign exchange markets across different currencies. As hospitalisation and death rates continue to drop, the government will have little reason to delay the progression through the four steps. The prudence underlying the government’s approach lowers the potential for more lockdowns, reducing economic uncertainty.
Economic challenges remain, and the effect of the COVID shutdowns will linger longer for specific sectors. For investors and market participants, progress on the health crisis means a healthier economic outlook, and investors have concluded the UK has stolen a march over other developed economies also looking to escape the grip of a nasty virus. The pound is a key beneficiary of a highly successful vaccine strategy.