Is our economy doomed?
Facts and figures regarding the future of the UK economy are thrown around every day. In fact, with different organisations each flaunting their own set of data, it’s hard to see the wood for the trees.
So what is the reality for the British economy post lockdown? Will UK employment levels return to those seen prior to the pandemic? How long will it take for the country’s economy to bounce back? And is it all doom and gloom, or is there light at the end of the tunnel?
Almost a quarter of all British employees have been furloughed. Every sector, outside food and drink, has been dramatically affected by coronavirus. The car industry has seen a 99% drop in vehicle sales in April this year. Closed signs fill most shop windows; our hotel doors remain closed, and the entertainment industry is on its knees. Our economy has collapsed, and despite herculean efforts from the government to support both families and businesses, economists warn of a difficult period ahead.
The Bank of England has informed the government that the UK economy is plunging downwards towards one of the deepest recessions since records began. Their scenario is based on social distancing measures being loosened at the start of June. In an unprecedented admission, the Bank estimate that the economy is set to reduce by nearly 14% in 2020. The Office for National Statistics (ONS) have not seen such a similar decline since 1949.
Britain’s undefined place in the EU adds uncertainty to the Bank of England’s predictions. A lack of clarity surrounds the UK’s trading relationship with both the EU and other global partners. The Head of Economics at The British Chambers of Commerce (BCC), Suren Thiru, stated: ‘failure to achieve a UK-EU arrangement conducive to trade is a key risk to the outlook for the UK economy, as disruption in early 2021 could adversely affect economic conditions.’
Equally, a struggling international economy adds further uncertainty to export growth figures. The BCC predict UK growth will be its weakest since 2009, thanks to a ‘subdued global economy.’
So shall we just despair about our uncertain economic future, or is there hope on the horizon?
Fortunately, The Bank of England do expect the economy to rebound in 2021 to 15%, with no lasting damage being expected. The economy, household incomes and employment rates are all expected to return to pre-coronavirus levels by the end of 2021.
However, the Bank admit that this projection does depend on households’ responses to the outbreak, once lockdown is lifted. They assume that British households will be cautious when socialising, travelling and shopping for the next 12 months. Behavioural scientists are unable to predict society’s movements with any great degree of certainty. The BCC predict that growth in household spending in 2020 will be its slowest since 2011, as the ‘effect of Coronavirus temporarily weakens consumer demand, despite historically low unemployment.’
However, these effects will be temporary. Economically, there may be a rocky path ahead, but The Bank of England’s forecasts should provide us with hope for the future.