Expert opinion- UK economy: What next?
Dr Maria Rana, expert in economics and finance at the University of Salford Business School, explores the current state of the UK economy, after key stats from the Bank of England show the huge impact of coronavirus.
“It is now clear that even if lockdown loosens this Sunday we are still a long way from ‘business as usual’. Until a vaccine is found we can assume that some form of restrictions will remain in place, with prolonged repercussions for the economy.
“The Bank of England has warned that UK GDP could shrink by 25% in the second quarter, while the annual contraction is estimated to be 14%. This would be the biggest annual decline since 1949. As energy price drop, inflation is forecast to fall to zero at the beginning of next year and remain below the 2% target in the coming two years. The BoE also expects the unemployment rate to double and rise above 9% in 2020.
“These estimates refer to a scenario in which social distancing measures are lifted between June and September, however several other even more severe scenarios are plausible. There is now fear that a significant number of workers currently furloughed might be made redundant and become unemployed once the scheme stops at the end of June. The Chancellor, Rishi Sunak, has said there will be no cliff edge, giving hope that the scheme might remain fully available for businesses such as restaurants, hotels, pubs, etc.., that will not be allowed to reopen in the initial phase of lifting the lockdown restrictions. For other firms the job subsidy might be reduced from 80% to 50% of the monthly salary, as they gradually return to trade.
“But which businesses are more likely to need the Coronavirus Job Retention Scheme (CJRS) the most? The industries with the highest proportion of workforce put on furlough in the two week period between the 6th and 19th of April 2020, were, according to the latest Business Interruption Coronavirus Survey (BICS) published by the ONS : Accommodation and Food Services (49.8%), Arts Entertainment and Recreation (46.5%), Construction (45.7%), Wholesale and Retail (34.2%), Transport and Storage (31.1%). Percentages are also high for: Water Supply and Waste Management ( 25.3%) and Manufacturing (23.4%). These sectors are likely to see high rates of redundancies in the coming months.
“The UK economy might bounce back to pre-virus levels in the middle of next year, as announced by the BoE, however this is only one of the possible scenarios. The forecasted GDP increase of 14% in 2021 might well be too optimistic. The future economic outlook is still very uncertain. A lot will depend on the ability of the Government to avoid a second coronavirus wave, which would require stricter lockdown measures to return in order to avoid overwhelming ICUs. The positive response of businesses and consumers is also essential for the economy to bounce back. With the UK death toll now being the highest in Europe, and with increasing evidence of mismanagement of coronavirus initial response, we cannot expect consumer and business confidence to be high.”
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