- The UK has administered far more vaccine doses than the EU, but it is all happening too late to impact infections this winter. Seasonal warming in Spring should anyway allow restrictions to loosen and growth to rebound irrespective of relative vaccine rollout.
- Vaccination is crucial to avoid a repeat of recent measures next winter. The UK and EU should both have completed their programmes by then. There is no significant economic advantage of the UK’s more advanced vaccination programme, in our view.
- Covid-19 will not be eradicated and flare-ups are still likely to trigger severe localised restrictions even next winter. Higher sensitivity to viral infection is the new normal.
Lockdown is destroying UK GDP while Eurostat inflates the HICP
1) Activity restrictions are lasting longer and doing more damage than widely assumed. We remain at the bottom of the Consensus for UK GDP in 2021.
2) Eurostat is pushing HICP inflation to use 2020 expenditure data for weights, with the probable new mix driving our forecast to the top of the euro area Consensus.
- Flash inflation releases for January have exceeded expectations to an almost ludicrous extent. Another spuriously aggressive methodological change has knocked the weight down on highly seasonal items and is likely to cause numerous surprises for years.
- Expenditure data provided a good proxy of the weight changes in Germany. We have applied these factors across Northern Europe and an augmented version elsewhere, and are well-positioned to precisely incorporate the news once it's announced.
- The ECB is now set to be surprised by inflation’s strength in 2021, which should help discourage the delivery of another deposit rate cut, in our view.