Christmas might not have been cancelled by prime minister Boris Johnson's introduction of 'Plan B' restrictions to fight the spread of the Omicron coronavirus variant, but it has certainly been curtailed.
Instructing people to work from home for the two weeks either side of Christmas Day has major implications for hotels, pubs, restaurants and city centre retailers which were hoping that this year’s holiday period might go some way towards replacing much of the sales they lost last year.
Although the restrictions are less severe than those experienced last Christmas and the economy is better able to cope, there is a real risk that GDP will shrink in December, given that the Office for National Statistics reported last week that it grew by just 0.1 per cent in October. Surging case numbers indicate restrictions could once again linger for some time.
Assuming these measures last until at least the end of January, they will knock around 0.4 percentage points off GDP growth, Deutsche Bank Research economist Sanjay Raja said in a note. “This should see both December and January GDP growth dip modestly into negative territory," he said.
The Centre for Economics and Business Research said work-from-home guidance would cause a £500m reduction in monthly spending across England’s five biggest cities and that Christmas party cancellations and travel restrictions will cost a further £1.3bn. This would “leave our town and city centres under real strain for retailers and hospitality”, said Confederation of British Industry director-general Tony Danker.
The impact will be especially tough given many businesses have just started to get back on their feet.
The Christmas period was being viewed as “crucial” for the recovery of pubs, Emma McClarkin, chief executive of the British Beer & Pub Association, said. The restrictions “threaten the viability of pubs who will lose vital revenue over the Christmas period”, she added.
Shares in one of Britain’s biggest pub groups, JD Wetherspoon (JDW), fell 5 per cent earlier in the week after it warned that first-half profit could be wiped out by what founder and chairman Tim Martin described as “a lockdown by stealth”.
UKHospitality chief executive Kate Nicholls also called for support including business rates relief, grants, rent protection and extended VAT reductions. The government has not indicated it would bring back cash support under the current plan.
For hotels, it is the reduction in attendee numbers or outright cancellation of Christmas and New Year parties, as well as family gatherings, that will cause the greatest disruption, according to Christian Mole, EY’s head of hospitality and leisure for the UK and Ireland.
“London hotels are more reliant on international inbound travel than the rest of the UK, and the new requirement for travellers to the UK to self-isolate ahead of a PCR test result will be a challenge for existing bookings and will likely result in a dip in forward bookings for the early part of 2022,” he said.
Outbound travel plans are also being upended. Travel agency giant Tui (TUI) said last week that “increased media coverage of rising incident rates and the emergence of [the] new Omicron variant" had weakened the positive booking momentum it had experienced since its September year end. Its winter bookings currently stand at 62 per cent of 2019 levels.
High street retailers are also feeling the pinch. Market researcher Ipsos (FRA:IPS) said that its retail traffic index recorded a 21.2 per cent decline in footfall on 2019 numbers for the week ending 11 December.
Its analysts now expect footfall for December to be 23.4 per cent below 2019 levels, compared with 19.9 per cent before Plan B measures were introduced. Major cities are being hit harder, with footfall falling 31.3 per cent last week compared with 18.9 per cent in towns. Out-of-town retail parks are also being favoured over shopping centres.
Retailers are hoping to offset lower in-store purchases with higher online sales and there were signs last month that customers were shopping early for Christmas.
Whether this is enough to offset the last-minute rush that retailers used to benefit from will only be known once retailers report post-Christmas trading updates but there are signs it might not be.
Alex Baldock, chief executive of electricals retailer Currys (CURY), said on Wednesday that “our market has been softer over recent weeks, and we may face into further headwinds from Omicron and associated restrictions” as it reported a 7 per cent increase in half-year pre-tax profit.
There are going to be winners as well as losers from the heightened restrictions. Online-only retailers should pick up some of the displaced high street sales and supermarkets are likely to witness a higher level of spending from customers who shy away from group gatherings.
NielsenIQ data for the 12 weeks to 3 December showed UK grocery sales were 2.5 per cent lower than the bumper year they enjoyed last year when many parts of the country were in lockdown, but are still 5-6 per cent ahead of 2019 levels.
Marks & Spencer (MKS) was the standout performer, with its sales for the period growing 9.1 per cent year on year, compared with declines of 0.7 per cent at Tesco (TSCO), 4.6 per cent at J Sainsbury (SBRY), 4.2 per cent at Asda and 5.6 per cent at Morrisons.
The other big winners are likely to be car insurers.
With fewer people commuting, insurers’ loss ratios are set to improve. Previous lockdown periods led to road traffic averaging 76 per cent of typical use, leading to a 14 per cent drop in loss ratios, Credit Suisse analysts said in a note.
It estimates that Sabre Insurance (SBRE) and Direct Line (DLG) are likely to be the biggest beneficiaries, with a four-week “moderate” reduction in road traffic potentially increasing earnings per share by 4.2 per cent and 3.3 per cent, respectively.
