Written by Luke Paterson
Edited by Antony Fitzsimmons
22 May 2020
Reading time: 6 minutes
With restrictions beginning to ease, is there light at the end of the tunnel for the UK economy? Will it back bounce to a somewhat normal state, or continue to crash as the ongoing crisis continues to unfold?
The Chancellor of the Exchequer, Rishi Sunak, who is responsible for the government’s economic and financial matters said, in no uncertain terms, an immediate economic recovery might not happen. Why is this?
Since the beginning of lockdown, everything apart from government ran sectors (the public sector) and essential services have closed shop. Most would agree the response remains justified considering the public health crisis which continues to unfold; however, a majority of employed and self-employed workers now find themselves either furloughed or jobless. In fact, the number of people claiming unemployment benefit rocketed to 2.96 million in April alone and is expected to be around 4 million today. For comparison, the average number of claimants per month since October 2019 has been around 1.2 million. Given that 1 in 3 Brits have less than £1,500 in savings, the Government approved a job retention scheme which provides an estimated 7.5 million people a somewhat short-term solution. The obvious question you may have is why wouldn’t everything just go back to how it was before the lockdown? Most people who have been put on temporary leave are earning 80% of their monthly wages till October 2020 – so what’s the issue?
So, you can think of what is happening as a constant air raid bombing on the UK economy during lockdown; only until the dust settles and the UK economy comes out of the air raid shelter will we have any idea of the extent of the damage. Following a huge downturn like this, the main ways of measuring the damage is through the value of a country’s total output (Gross Domestic Product) and the unemployment rate. Importantly, we must see how much of that damage persists and whether there’s even an economy left!
The recovery, in part, is dependent on the effectiveness of the government’s initiatives in helping households and businesses. It’s important to note that the Job Retention and Business Interruption Loan schemes are disaster relief packages, not aimed at stimulating economic growth (i.e. a stimulus package) but for the survival of businesses and job security.
There is an obvious fear of a second outbreak from loosening the restrictions which is directly affecting consumer confidence. Nobody wants to take responsibility if it goes wrong so the government must step in to advise the best practices and instil confidence regarding public health. By now we know what a safe reopening requires: abundant and accurate tests, quick tracing, isolating capabilities for new cases, encouraging the vulnerable to remain at home and, crucially, a low rate of infection.
Businesses can only operate if they’ve got people back working but this is not necessarily an easy thing to do. Some may feel unsafe in their workplace, be vulnerable and shielding or be parents refusing to send their children to school if they deem doing so unsafe. Equally, most individuals are still likely to be worried about contracting the virus and/or passing the virus on. As soon as the economy opens it’s unlikely everyone will be rushing out for a three-course meal, served by a waiter/waitress wearing a mask, with tables spaced far apart – this will take time to adjust to. Indeed, this will not be true for everyone; younger people might be more willing to use the service sector more than others (a lot of my friends have moaned throughout lockdown about getting haircuts!). However, younger people, on average, have significantly lower incomes to spend in comparison to their parents who, judging the risk, may be slower to return to a somewhat normal life. Similarly, the elderly and most vulnerable are unlikely to be willing to return to normal until the chance of catching the virus is virtually zero.
The British highstreets were fragile before the lockdown and never really recovered from the 2008/09 banking crisis (reminiscing to the national treasure which was Woolworths). However, without direct government policy, it is likely the coronavirus recession could be the last nail in the coffin, not just for the highstreets, but for the hospitality industry too. Consider a small restaurant or café; not only are they facing reduced revenue from less footfall and seating space, but also additional costs to operate safely and train staff. People are arguing for “corona”- charges to be added to bills. Although a good idea, who is really willing to pay London prices in order to keep such businesses open?
The Government needs to step in to ensure safe measures – such as social distancing, temperature checks, the availability of safe social bubbles (who you are allowed to meet), vending machines for face-masks and staggered school times – are in place to prevent the further spread of the disease. Rather than risking the chance of a second wave we must be fundamentally confident we are opening the economy safely.
The issue of a second nationwide outbreak of the virus would be more catastrophic for the economy (and human life). Not only would a second lockdown likely occur, but who is really going to want to get a haircut after the barber’s last customer got sick? What this means is if the country goes into a second lockdown it will be significantly harder to reopen the economy as people will be even more cautious than before.
Interestingly, the measures we must implement to prevent a catastrophic second wave are actually the same measures needed to return the economy back to a somewhat normal state. The quicker businesses and consumers can adapt safely to the new procedures, the quicker the economy can recover. Only when people do not feel as if shopping is equivalent to walking through radioactive fallout will we start to see the economy recover.
An increasing number of commentators are advocating reopening the economy fully as the current risk of getting the virus in the population is actually quite low – this is actually true. Going out and about today is unlikely to make you ill. Let us be honest, the majority of us have all been to the shops and felt fine in the following days (asymptomatic symptoms could have occurred). Anything we experience, in most cases, is down to hypochondria! The fact is the actual risk of contracting the virus in public is low, but the risk of losing control of the virus again is high. The biggest problem however is entrusting the public to be sensible and to social distance which, in a fast-paced society, is not so simple.
Ultimately, how well we all carry out the continuing social distancing measures, in practise, and when the lockdown is lifted, will not only determine the likelihood of catching the virus but also how quickly everything will get back to “normal” economically. In essence, the economic recovery of people’s livelihoods and the infection rate solely depends on the behaviour of society. Thus, every individual is continuously influencing the recovery, either positively or negatively, and the claims that we either save lives or save the economy are nonsense.
The only way to save jobs and businesses is to actively follow the advice public health officials give. Additionally, this will help prevent anymore unnecessary deaths.
Office for National Statistics