INTERVIEW2: UK's 2nd Lockdown May Have Less Impact-Miles

The UK's new one-month national lockdown could have a proportionately smaller effect on output than a severely damaging three-month lockdown earlier in the year, so long as it isn't extended, former Bank of England Monetary Policy Committee member David Miles told MNI.

If the lockdown which begins on Thursday is extended past its scheduled Dec. 2 conclusion, the associated costs and labour market scarring could rise rapidly, Miles said in an interview, in which he said that the UK's first lockdown which began in March had caused more economic damage than could be justified by health gains.

"The effects are potentially non-linear, in the sense that I suspect that a two-month lockdown would be more than twice as bad as a one-month lockdown," he said, "Because there is an unknown number of firms … that are somewhere quite near the brink of having lost so much revenue.

"For a month, maybe, the majority of those firms that are teetering on the brink can make it through again and will be able to start up."

FIRST LOCKDOWN COSTS EXCEEDED BENEFITS

The economic costs of the first lockdown exceeded the benefits even on the lowest plausible estimate of costs even once health gains were factored in, said Miles, a professor at Imperial College, citing research he carried out with colleagues incorporating calculations of quality-adjusted life years, a standard measure in UK health policy which values lives saved at up to GBP30,000.

"On the benefits side, I think there is also something of a similar phenomenon … a three months lockdown doesn't get you three times the benefit of a one-month lockdown," Miles said.

When the Bank of England and the Office for Budget Responsibility first published scenarios they assumed a smooth re-opening after the initial lockdown in March and estimated that GDP would be 13-14% lower by end 2020, translating into a 9% lockdown GDP hit on Miles's reckoning. He sees risks of deep economic scarring from a longer lockdown.

"We ended up assuming that of the very huge drop in GDP over the months of the first lockdown that something like 60-odd percent of it was as a result of the lockdown and 40-odd percent of it would have happened as people naturally became more cautious without actual restrictions," Miles said.

LABOUR MARKET

The employment level has since fallen sharply. Miles cites work by his colleague Carol Propper and others that found a 1% fall in employment leads to a 2% rise in the prevalence of chronic illness, implying that a labour market hit from Covid similar to that of the global financial crisis would see 900,000 more working people affected.

"In terms of employment declines the fall since COVID arrived is on a par with the financial crisis already. This is where we are right now. If something like 900,000 people will have chronic illnesses … as a result of that kind of decline in employment, most of them are mental health problems but there are others as well, that is staggeringly large," Miles said.

"It is just not very likely … that you just bounce back and in six months employment is back at where it was. It seems to me more likely that these sort of negative, wider effects of lockdown develop more than proportionately with the length of the lockdown."