Perspectives

The British lead the way in vaccination

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Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
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UNITED KINGDOM  
THE BRITISH LEAD THE WAY IN VACCINATION  
Gambling has risks, but sometimes you win big. No stranger to risky gambles (Brexit, herd immunity to Covid-19…)  
the UK Prime Minister, Boris Johnson, can now claim that one of his wagers – betting early and big on vaccines – has  
allowed his country to be amongst the first to see the light at the end of the tunnel. Having been in strict lockdown  
since the beginning of the year, and whilst also suffering from a collapse in trade with the European Union, the  
economy now seems to have touched bottom; economic surveys and mobility reports promise better days ahead.  
Both fiscal and monetary policy will help support the recovery, before thoughts move to addressing the deficit, with  
the first turn of the screw expected in 2023.  
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Having been particularly hard-hit by Covid-19 , the UK is now one of  
the countries vaccinating most rapidly. With 31 million vaccine doses  
GROWTH AND INFLATION (%)  
given since the beginning of the year, coverage of the population has  
reached 45%, compared to just 17% in the European Union, where  
GDP Growth  
Forecast  
Inflation  
Forecast  
delays to the vaccination programme are piling up, as are frustrations  
with its British supplier. The result is that the pandemic is in retreat in  
the UK. With the death rate now down to 50 per day (from 1,500 at the  
peak of the epidemic in January) and the number of new cases at its  
lowest daily figure since the virus first struck, hope is finally starting to  
grow. Despite the double whammy of Brexit and the health crisis, the  
economy has even managed to find some stability.  
In January, a strict lockdown and an unprecedented fall in exports to  
the EU – the result of the reintroduction of non-tariff barriers – caused  
a further fall in GDP of 3%, coming on top of the drop of nearly 10% in  
6.1  
6.0  
7
2
3
2.1  
1.5  
1.8  
1.4  
0.9  
-
-8  
2
020. Since then, however, economic indicators have recovered. This is  
-
10.2  
particularly true of surveys of purchasing managers, which look more  
optimistic, and the mobility reports from Google, which are showing  
some signs of movement. The recession in the first quarter is likely to  
prove less severe than expected, and then to give way to the beginning  
of a recovery during the spring.  
-
13  
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
Monetary policy also promises to remain accommodating. In line with  
other major central banks, the Bank of England has supported go-  
vernment measures to tackle the pandemic by stepping up its asset  
purchase programme (raising target holdings from GBP475 billion to  
GOVERNMENT SUPPORT EXTENDED... FOR SOME TIME TO  
COME  
The policy response will favour recovery over budget equilibrium for GBP895 billion by year end, or 42% of GDP). It has also brought its  
quite some time yet. As in most advanced economies where automatic policy rate close to zero (0.1% since 20 March 2020). At its most recent  
stabilisers are weak, the health crisis has demanded a strong response meeting, on 17 March 2021, the Monetary Policy Committee noted the  
from the authorities. The International Monetary Fund puts the UK improvement in the economic outlook, but indicated that it would not  
government on the list of those that have done the most to tackle change its policy. The end of “at whatever cost” (increases in business  
the depressive effects of the pandemic: 16 points of GDP have been tax, the freezing of tax allowances and rates...) will come later... in  
engaged in the economy (excluding guarantees, loans and injections 2023.  
of capital), double the effort made in the European Union. As a result,  
Completed on 2 April 2021  
the government deficit – at 16.9% of GDP in 2020, from less than 3% in  
2
019 – has seen unprecedented expansion.  
Jean-Luc Proutat  
Jean-luc.proutat@bnpparibas.com  
In his budget, presented on 3 March, Chancellor of the Exchequer Rishi  
Sunak maintained a resolutely combative approach for the coming  
fiscal year (April 2021 to April 2022). He plans to devote a further  
GBP60 billion, or 3 points of GDP, to supporting economic activity, for  
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instance by providing tax incentives for UK businesses to relocate . This  
is a necessity. With Brexit, foreign direct investment has fallen to zero  
and has been replaced by net outflows for the first time in 35 years.  
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127,000 Covid-related deaths had been recorded by 2 April 2021, or 190 for every 100,000 inhabitants, one of the highest death rates amongst the members of the Organisation for Economic Cooperation  
and Development (OECD).  
Over a two-year period, capital expenditure within the national economic territory can be deducted from taxable profit at a rate of 130%. Estimated annual cost of the measure: GBP12 billion. Source: Office  
for Budget Responsibility, March 2021.  
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