A year after Boris Johnson imposed the first coronavirus lockout order, the UK economy is on the brink of a rapid vaccine recovery. But the aftermath of the crisis will likely be felt for a while, and perhaps permanently.
Since the prime minister announced the restrictions in March 2020, the country’s economic fortunes have been closely linked with progress against the virus, even as households and companies have gone back. should be much better at adapting to disruption and working remotely.
Disease and drought are a powerful combination creating the worst annual yield drop in 2020 in over 300 years.
The UK produces 9.9% less goods and services than the previous year, far more than any contraction since the concept of gross domestic product was created in the early 20th century. and was only challenged by harsh winters when the UK was an agricultural society.
It was also the period of the most uneven economic downturn since comparable records began in 1997 with pharmaceutical services, research and delivery booming, while output in the sector. travel and hospitality decline, reflecting restrictions on customer-oriented sectors.
Workers in higher-paying jobs, such as professional occupations, largely continue to work from home, while younger and lower-paid workers are more likely to lose. job or fired.
“The poorest households have seen their biggest drop in income during the pandemic,” said Yael Selfin, chief economist at consulting firm KPMG. . . requires many people to spend any small savings on the safety net they have. “
To protect the livelihood, the government responded with an unprecedented £ 352 billion worth of measures, pushing the public debt to GDP ratio to 97.5%, the highest level since the early 1960s.
Where are we now?
In January, the value of goods and services produced by the UK economy remained 9% below pre-pandemic levels a year earlier.
This is worse than many peers and while the different methods complicate the comparison, the Office of Budget Accountability, independent UK fiscal watchdog, said: “The main reason the UK suffered the greater economic impact from the pandemic is simply that the UK has experienced higher rates of viral infections, hospitalizations and deaths than other countries.”
Society has learned to adapt over the past year, with about Half of all hospitality and entertainment businesses continued to operate as early as 2021, compared with just 20 percent during the first session.
Consumer spending also showed a slight shrinking in recent months compared to spring, with 35% of retail sales now done online – up 15 percentage points from a year ago.
Workers have largely been protected from the full effects of the recession thanks to the government’s strong growth plan to protect income while output declines. Paul Dales, UK chief economist at consulting firm Capital Economics, said the job retention plan was “remarkable” and “more successful than anyone, maybe even the prime minister.” , imagine”. He added that its success could make it politically unacceptable to let unemployment soar in the future.
The entire impact of the pandemic was also obscured when the Brexit transition ended, which contributed to a sharp decline in trade.
Where we are going?
Rapid vaccine rollout, declining infections, expanding community support by 2021, and a plan to reopen businesses all point to a strong economic recovery by the end of the year. while most of the rest of Europe faces the threat of the third wave.
In the first quarter of next year, the economy will be 12% bigger than it is today, OBR forecasts March 3.
Over the coming months, much of it depends on how much consumers start to spend again, which includes the more than £ 160 billion in bank savings accumulated through lower travel, travel and dining expenses.
If they spend less, the government will be under pressure to further stimulate the economy and the Bank of England will consider imposing negative interest rates. But the pressure will increase on the rising rate if households are comfortable to spend, as Andy Haldane, the central bank’s chief economist, expects.
Andrew Goodwin, an economist at consulting firm Oxford Economics, says excess savings have “gone into the wrong hands – a large portion of which is in the richer but less able to spend it.” “.
Despite a strong rebound, OBR forecasts GDP remains 3% lower than its pre-pandemic trend in 2024, meaning the virus will cause lasting damage to the UK economy, with increasingly fewer productive jobs and weaker business opportunities. It says these scars will be caused by lower investment, higher unemployment and lower population growth caused by the pandemic.
Those who think the scar will be lower are believing the economy will return to normal more quickly. Dales is one of the most optimistic in this regard, noting that unlike during the 2009 financial crisis, the supply of credit increased rather than decreased and workers remained in relationships with people their employers. “It’s not normal to think that there won’t be many scars,” he said.