COVID-19: Will Britain’s economy weather the storm?
May 6, 2020
3 min read
What's going on here?
The Coronavirus pandemic has had an unprecedented impact on the British economy. With all but essential shops and services shut down, the damage caused by the pandemic is crippling. But is it all doom and gloom?
What does this mean?
On March 20 2020, British Prime Minister Boris Johnson ordered the closure of all restaurants, bars, pubs, gyms and retailers. This was soon followed by the announcement of a nationwide lockdown on March 23. This inevitably had devastating consequences for many UK businesses and the economy as a whole. Stock markets have plummeted. The FTSE 100 at one point fell to levels below that of the financial crisis in 2009. The government, acknowledging the economic impact, have put measures in place to help businesses and the individuals that work for them, in order to try and keep the economy afloat. As of Monday April 20, more than 140,000 companies have applied to the Government’s furlough scheme.
Such measures will save potentially millions of jobs, and stop many businesses from going under, but it might not be enough to combat the extraordinarily severe impact the pandemic has had on the economy. Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics points out that “In a normal recession, if it was very bad, you might see a quarter-on-quarter drop of 2% in GDP. The second quarter this year will probably be down closer to 20%”. Statistics such as this show the scale of the challenge that the UK economy faces if it is to recover.
What's the big picture effect?
Britain is facing the worst economic recession in a generation. With the lockdown measures currently in place, damage to the economy was inevitable. However, it is unclear exactly how the economy will react once the lockdown is eventually lifted. A major aspect of the government furloughing scheme is that it allows workers to receive a wage even while not working. The hope is that once people can leave their homes, and businesses reopen, individuals will have sufficient reserves to go out and spend money again. Before the pandemic emerged, there was no shortage of demand from the public for goods and services, and it is therefore vital for the health of the economy that people have the funds to go out and spend once the country emerges from this crisis.
Another ray of hope for the British economy is the relatively healthy state of banks before the crisis. In comparison to the last global recession, banks are in a much better position to help businesses. Indeed, this time around, banks are seen as part of the solution, rather than the cause of the problem. The government’s Coronavirus Business Interruption Loan Scheme allows small and medium-sized businesses to access government-backed loans on good terms from lenders, and provides a stark contrast to the situation in 2009 where the banking system essentially ground to a halt.
It remains to be seen how the British economy will react once the crisis has passed. The damage caused as of now has been an unavoidable consequence of policies rightly taken to protect human life at all costs. The economy will recover, as it did after the last recession. The hope remains that the recovery of the economy is as rapid as its decline.
Report written by Matthew Leake
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