Following the recent closure of businesses around the world, economies have seen their recent growth wiped out, including the British economy which has shrunk by 20.4% in April, the first full month the country spent in lockdown.
The announcement by the Office for National Statistics (ONS) confirmed the figures, saying that every sector of the economy was affected however the hospitality, health, education and motor industries were the ones that were hit the most.
With the economy already seeing a decline in March of 5.8% it means the UK economy has shrunk by just over 25% since February, taking it back to 2002 figures and effectively wiping out the last two decades worth of growth.
James Smith works as a research director at the Resolution Foundation and said, “This startling fall in activity takes output in April back to around its level in July 2002”.
As with many countries around the world, the British government started closing businesses and schools in March, slowly reopening different sections as the weeks have progressed. This has led the economy to struggle throughout May and June and experts predict that the UK is on target for one of its worst recessions ever. In fact, the Organization for Economic Cooperation and Development has even warned that they are on track to be the worst hit economy in the developed world this year.
Currently lockdown is slowly being lifted which should in turn see the economy start to grow again. Nonessential shops have only just been allowed to reopen but must adhere to the government’s continuing social distancing requirements.
And with specific parts of the hospitality industry due to reopen at the beginning of July, Prime Minister Boris Johnson has announced he believes that the country’s economy will “bounce back” saying, “The UK is heavily dependent on services. We’re a dynamic, creative economy. We depend so much on human contact. We have been very badly hit by this.”
Yet despite Johnson’s optimism there are concerns that the economy may not be as strong as some believe, due to the fact there are still social distancing restrictions in place while the coronavirus continues to be a threat to the public.
There are many who are putting increasing pressure on the government to reduce the distance that people have to stay apart which currently continues to stay at 2 meters and exceeds the World Health Organization’s requirements of only one meter, a ruling that is being implemented in the majority of countries affected by the virus.
Johnson has confirmed that his government are continuing to assess their stance on the virus by looking at all scientific advice and that the distance is constantly under review.
There are also concerns that the recovery could be held back as businesses struggle to restart as well as the millions of workers who are currently being furloughed and could potentially end up unemployed. There are also millions of British citizens who are still concerned about going into stores while the virus continues to be a threat.
Add to this the doubt over the future of their trading relationship with the European Union (EU) following the UK’s decision to leave the union and it is clear to see that the economy make take some time to get restarted before being able to grow.
Trades Union Congress’ general secretary Frances O’Grady believes that there needs to be continued support for those that have been hit hardest by the shutdown of the British economy including businesses and employees, “The more people in work, the faster we will work our way out of recession”.
Following the government’s Job Retention Scheme, where employees have received up to 80% of their salaries by the government (up to $3,125 a month) while they have been furloughed, Rishi Sunak, Treasure Chief, confirmed that companies would have to start contributing to their employees’ salaries from August with the scheme being closed in October.
With the furloughing scheme being closed there is genuine concern that there will be a significant increase in unemployment. Currently there are 8.9 million employees receiving money from the scheme and which is costing the government $25 billion. In March there were 1.35 million people out of work and if 90% of the furloughed staff go back to work the unemployment figures would still increase substantially.
The country’s schools are still not fully reopened, due to a u-turn by Johnson to keep them closed, and it is believed that some primary and secondary pupils will remain at home for the remainder of the term meaning many will have been off school from March until the fall term which reopens in September. This is also impacting the economy as many parents are struggling to find appropriate childcare while they return to work.
Luke Bartholomew, investment strategist at Aberdeen Standard Investments sums up the situation by saying, “it will take a very long time and significant monetary and fiscal stimulus for the economy to climb out of a hole this large.”