16 Feb 2021 3 min read

COVID-19: vaccinations vs mutations

By James Carrick

How can investors reconcile the encouraging news on vaccination rates with concerns about new strains of the virus?


Virus image

What are you most looking forward to when the lockdown eventually ends? For my son, it will be seeing his friends at school. I’m missing everyone at work too, as well as the discipline of cycling to and from the office.

With Boris Johnson set to announce the UK’s reopening roadmap on 22 February, there’s intense speculation about what will open when. Businesses are understandably pushing for a fast return to normality, but the government is hinting at a more cautious approach.

The UK is in a better position than many other countries, having given first vaccination shots to 23% of the population, almost double that of the US and seven times that of the EU.

This is important because the oldest 25% of the population accounts for 95% of COVID-19 deaths and two-thirds of hospital and ICU visits, as I discussed in December. We should therefore soon see a divergence between case numbers and deaths/hospitalisations in the UK, whereas European hospitals are likely to remain under pressure for longer, until they have vaccinated the vulnerable.

Another positive factor is the weather. Just as we worried about the winter impact on respiratory viruses, we should be sanguine about the spring. Academic research suggests the reproductive growth rate (R) for flu can swing by 30% due to seasonality.

However, it’s unclear how much of this is biological (due to viruses being better able to bypass our immune systems) or sociological (due to less time spent indoors where the virus is easier to catch). We could already be enjoying some of these benefits by being in lockdown: for example, virus growth might slow when schoolkids play outdoors at break time, but at the moment they’re not even at school!

The mutation question

On the downside, we also have mutations to consider. There are two key mutations that have occurred around the world. First, the N501Y mutation (which is already dominant in the UK) is estimated to make the virus more transmissible because it can attack us more easily. Second, the E484K mutation has proven to be harder for our immune systems and vaccines to fight, particularly the AstraZeneca vaccine which is the most widespread jab used in the UK. Several strains have both mutations – South Africa, Brazil, and recently the UK.

Both of these mutations could undermine the ‘herd immunity’ benefits from vaccination. For N501Y, a given level of social activity is associated with a 50% higher R. For E484K, the efficacy of some vaccinations may be reduced, but so far evidence suggests that it is the effectiveness of preventing transmission of infections that is affected, rather than the effectiveness of preventing serious outcomes.

It is also possible (though not yet proven) that vaccinated individuals who catch the virus could be less infectious than normal if they have a lower viral load. But Israeli data suggests the vaccines aren’t 100% effective against serious outcomes – even with two doses – and there are still vulnerable people across all age groups, so we don’t want to see another surge in the virus. So far, re-infection has only been observed in very isolated cases, but there is still much to learn and further mutations could increase the risk.

Taken together, these competing dynamics suggest the UK should maintain a cautious approach to reopening. It is likely that Europe will need to wait a couple of months longer.

We hope vaccinations, seasonality, and a gradual approach to reopening will keep squashing the virus to manageable levels (like those seen in China and Australia) and that adapted ‘booster’ vaccines can be rolled out in the autumn. There is nevertheless a risk that some countries or states reopen too quickly as the virus continues to mutate.

We will continue to monitor these developments closely, and a forthcoming blog will consider the implications of these trends for investors.

James Carrick

Global economist

James is a global economist with a knack for using analogies to explain economic concepts. He is a techno-optimist and an early adopter. He enjoys building models - both of the economy and robot Lego ones with his son. He also likes crunching data and chocolate bars. He joined in 2006 from the number-one ranked economics team at ABN AMRO with prior experience at HM Treasury.

James Carrick