However, several questions remain:
- How long will the protection from these vaccines last?
- How far will they reduce transmission, as opposed to reducing or eliminating symptoms?
- What are the timelines for the programme of mass vaccination?
- How will economies respond; in particular, when can we hope to get back to ‘normal’?
We do not know the answer to (i) and the answer to (ii) will be a question of degree. By reducing symptoms such as coughing, a vaccine will reduce transmission to some extent, but by how much will only be known when the vaccination programme gets underway.
As far as the timeline for mass vaccination, much depends on when the approvals by each country are received. The Oxford vaccine is especially important for the UK, as the British government have only ordered a small number of doses of the Pfizer vaccine and their supply of the Moderna does not arrive until the spring. By contrast, they have ordered enough doses of the Oxford vaccine to cover almost the entire UK population.
The Phase 3 trial results for the Oxford vaccine, whilst at first glance looked a little disappointing with efficacy of 70%, lower than the very high bar set by the Moderna and Pfizer vaccines, a sub-set of the results showed 90% efficacy. Bettering this news still, is that the Oxford vaccine can be stored in a conventional refrigerator, in comparison to the Moderna vaccine having to be stored at -20 degrees Celsius, and the Pfizer vaccine having to be stored at a bracing -70 degrees Celsius.
Further good news has been shared in relation to the Oxford vaccine by Oxford Professor, Andrew Pollard. First, that it was 100% effective in preventing the need for hospitalisation and second, evidence suggested that it reduced asymptomatic infection and would reduce infection rates. With a staggering 3 billion doses planned for production in 2021, we can feel confident that we have a way out of the nightmare induced by the terrible disease.
Taking this into account, there is now a distinct possibility that the UK will be able to begin a programme of mass vaccination in the coming weeks, hopefully providing sufficient coverage to allow lockdown restrictions to be fully eased by the spring. This is indeed the view of the distinguished immunologist, Professor John Bell.
The rest of the developed world will not be far behind. Emerging markets will be slower, but China has its own supplies and other emerging markets should have reasonable coverage by the end of 2021.
Given this, when can we expect a return to normality for economic activity and corporate profits?
We are sceptical of claims that ‘scarring’ will permanently depress economic activity. This has been a deep and uniquely sharp recession. But it has also been short and accompanied by unprecedented policy support. Many consumers are actually better off than they were pre-COVID and business bankruptcies have been very low. Nonetheless, the world economy will have to follow a difficult path over the next several months, not forgetting that infection rates remain worryingly high.
Our best guess is that UK economic activity will get close to pre-COVID levels by this time next year, as the chart indicates. But the path to that will be far from even and we are set for a difficult few months. GDP is likely to decline over the next few months, with rapid growth in the late spring and summer.
We expect a deal to be struck on Brexit, but this is no means certain, and even with a deal, there will still be significant disruption. The housing market has been strong recently, supported by pent up demand and the stamp duty holiday. That being said, mortgage rates have risen significantly for higher-leveraged loans and the holiday is due to end next March. Around the same time, companies will have to pay arrears on VAT and with the eviction ban ending, landlords will be demanding rent arrears.