A Closer Look At The UK Economy’s Recovery Scenario

Summary

• The British economy can lose up to half a million pounds, if work from home continues: CEBR study
• Total impact of the reopening of schools in the UK will sum up to be £70 billion for a year
• YouGov/CEBR consumer confidence index fell showing pessimism among British households about economic recovery
• Bank of England has options to aid the economic recovery, going forward: Andrew Bailey
• UK government considering raising additional taxes worth more than £20 billion per annum
• Many workers reluctant to return to offices and employers leaving office premises to contain costs

A recent study conducted by the Centre for Economics and Business Research (CEBR) has estimated that it would cost £480 billion to the British economy in case the country’s employees do not resume going back to their offices for work.

CEBR is a UK based consulting organisation that provides independent economic forecasting and analysis services.

Douglas McWilliams, deputy chairman, CEBR has warned that the British economy shall not return to its pre-pandemic levels till the year 2025 in case the work from home practice continues as it is.

The UK government is well aware of the fact that for the country’s economy to get going fast, people need to resume working from offices. Stephen Barclay, chief secretary, UK Treasury has emphasized that the government is keen on people ceasing to work from home and joining back offices, wherever it is safe to do so.

According to the data from Office for National Statistics (ONS), UK, 46.6 per cent of the total employees in the country worked from home during the month of April 2020. These are the latest government statistics available around this parameter.

Low YouGov/CEBR consumer confidence index for August 2020

In a separate survey jointly done by CEBR and YouGov, the consumer confidence index plummeted to a reading of 99.5 during the month of August 2020, after steadily rising for three months consecutively before that (May to July 2020). A reading below 100 signifies pessimism while a one above 100 signals optimism. The survey records monthly readings from around 6000 households across the UK.

YouGov is a market research and data analytics firm, based out of London.

The survey results pointed out that British households are losing confidence in the economic recovery process and are increasingly concerned about their job security.

Schools reopening to aid economic recovery

CEBR said that the reopening of schools in the country will benefit the recovery process in more ways that one. Apart from directly contributing to the growth of the Britain education industry itself, which contributes for 7.2 per cent of the nation’s gross domestic product (GDP), it will also enable millions of Britishers to return to their offices, adding to the growth of economic output. Apart from that, high streets will be full of life once people start to commute to offices daily. Therefore, the total impact of the reopening of schools in the UK will sum up to be £70 billion for a year, as per CEBR estimates. This amount is equivalent to 3.3 per cent of the nation’s total GDP for the year 2019.

If the economic recession continues across the nation, its main impacts are expected to be a rise in unemployment, fall in income levels, rise in poverty & inequality, more government borrowings, firm closures, and loss of economic output.

Bank of England has options to aid recovery, going forward

Andrew Bailey, governor, Bank of England has stated that the central bank still has a lot of options to fight the economic recession caused by the coronavirus pandemic, if required. It said that its quantitative easing program has been working well, which was initiated during March 2020 and extended during June 2020.

In August 2020, the central bank had issued a guideline explaining that it will not resort to tightening the monetary policy till the nation’s inflation targets are met.

The Bank of England had earlier lowered the bank rate to an all time low of 0.1 per cent to boost private investment and fight the pandemic.

Also Read: British Economy To Rebound In Q3

UK government considering raising taxes

According to media reports, the UK government is contemplating on increasing the corporation tax, the capital gains tax and the fuel tax rates, in the forthcoming November 2020 budget. The plan is to raise additional taxes worth more than £20 billion every year.

However, raising tax rates at a time when the British economy is contracting, may put pressure on its growth, warn experts. The British economy had contracted by close to 20 per cent during Q1 2020, which has been a major area of worry for the Boris Johnson government.

However, the British government is running high public borrowings and is in a dire need to raise its revenue sources.

Rajiv Biswas, chief economist (Asia-Pacific), IHS Markit, has lamented that if the UK government raises its corporation tax rate, it could dissuade the Asian companies to enter the country, in a scenario when Brexit has already made Britain a less attractive destination as compared to the European Union.

Many workers reluctant to return to offices

With the persistent fear of catching corona infections, many employees are still reluctant to return to offices in the UK. Employee unions are requesting companies to remain flexible, understand that the world has changed, and embrace this change.

Some employers have already understood this fact and have announced that they will not be returning to work from office at least till the mid of 2021. For example, 50,000 employees of the NatWest Group are continuing to happily work out of the comfort of their homes. Another company Standard Life Aberdeen has announced the same policy for most if its workers.

Also Read: Is it Still Relevant to own Banking Sector Stocks like Lloyds & NatWest Group?

Many other banks such as the Lloyds Banking Group, Virgin Money, and the UBS Bank have also instructed their employees to not to expect coming back to offices to work in the near future.

Moreover, a recent report revealed that Capita, the government contracting firm, is planning to permanently close more than one third of its 250 offices spread across the UK. The main aim of the company to go in for this move is to cut its operations cost and better handle the ongoing economic crisis. It will save the company close to £20 million by the end of the year 2020. To this end, Capita is not renewing its leases on 25 of its commercial property spaces.

Also Read: Work from Home Leading To Ravaging Sales of Pret a Manger and Wahaca

To sum up, the clear direction of the UK economy would only be known once the coronavirus pandemic is completely over. The government is trying its level best to aid the economic recovery by encouraging people to go back to offices and reopen the schools on the one hand, and raise the sources of its tax revenue to lower its fiscal deficit on the other hand. The battered companies are trying to cut their costs and sail through the struggling period without collapsing. The people are planning to keep spending less than normal, with fears looming large over their job stability and income streams. One would probably need to wait till a vaccine comes around for mass distribution, to clearly know the shape of things to come.