Effect of the Coronavirus pandemic: UK’s economic growth set to slow down to 0.8 per cent in 2020

The GDP of United Kingdom is set to grow by 0.8 per cent in 2020 compared to an earlier estimate of 1 per cent, thanks to the coronavirus outbreak, as per a report published by the British Chambers of Commerce as on date. The outbreak, which has pushed the country to lock itself up for fear of the transmission of the virus, has brought down business activity levels in almost all sectors of the economy. The epidemic, which first started in the Wuhan province of China, has now spread across the world, engulfing practically 190,000 people and killing more than 7,000. In the United Kingdom alone, more than 1,500 cases have been reported till now, out of which 55 have been reported dead.

Starting in January 2020, the virus spread across the world very swiftly. The virus is contagious and discourages contact and travel. The global airline industry was the worst sufferer of this outbreak as it suffered massive cancellations and fall in demand for seats. On Sunday last, The United States had put restrictions on travellers from the United Kingdom from entering their territories for the fear that they may be carrying the deadly virus strain. People who had travelled by air from China to Europe were held responsible for bringing the pandemic to the European continent, with Italy becoming the epicentre of the epidemic today while not being its country of origin. Other forms of transportation of goods and people across the world have also taken a severe beating because of the outbreak, shaving off billions of dollars’ worth of global trade and commerce. The other industry to be affected the most was the food industry which is witnessing less amount of meat and related food products being traded internationally. A lot of existing stock of such food items also had to be destroyed, leading to losses of billions of dollars to businesses located in affected countries. Other than that, the scare has also required a significant amount of money being spent on new and improved health monitoring systems and related infrastructure to protect against any future outbreak of such a virus.

The United Kingdom in its budget presented on 11^th March 2020, had allocated as much as £650 billion in public capital spending to spur growth in the country with another £30 billion dedicated expenditures towards helping businesses fighting disruptions caused by the pandemic. The Boris Johnson government, which had come to power with the poll plank that the United Kingdom was stagnating under the European Union regime, had promised drastic measures to bring employment and growth back to the country. However, this outbreak may prove the efforts of the government inadequate. The logistical bottlenecks that have cropped up on account of restricted movement of men and material could very well result in the economy not responding to the stimulus measures being instituted by the government and the Bank of England.

The United Kingdom, during the outbreak of the SARS epidemic, had only one infected case in the Republic of Ireland and the country had taken unprecedented measures to protect its citizens from the pandemic. The well-known SARS epidemic of the 2003 era was the result of a strain of this species of virus that has caused the coronavirus outbreak. Back then, the outbreak of the epidemic had affected about 8,098 people worldwide and claimed as many as 774 lives in 17 countries and had been termed by the WHO as a pandemic. This time around, however, the virus has come out much more potent, killing ten times more people in five times as many countries. WHO and other national and international health organisations of repute are working tirelessly to contain the spread and impact of the virus and several research groups the world over are busy developing vaccines against this particular strain of the virus. However, in the short run, it is going to be the precautionary measures that will determine how well the country will be able to contain the damage to its people and businesses because of this pandemic.

China, over the years, has become a dominant global economy. Being the second-largest economy of the world, it has firmly established itself as the manufacturing capital of the world. The country is the largest producer of semi-finished goods and components the world over. Several of the world’s leading manufacturing companies have component outsourcing contracts with manufacturers of China, importing billions of dollars' worth of such goods into the Western world on a daily basis. With the coronavirus, the pandemic many of these manufacturing facilities in China have shut shop and their inventories have been locked up. The consequence, thus, of this loss in manufacturing activity in China is the slowdown in manufacturing activity across the world. Several automobile, heavy vehicle and other equipment manufacturing companies in the United Kingdom have issued production warnings for the year 2020, as they expect inbound component disruptions to continue for an extended period of time. Same is also the case with other low-value merchandisable commodities which have been restricted from entering the country for fear of containing the dreaded strain of the virus.

The Federal Reserve of the United States of America had recently cut down its interest rates twice to stand at a low of 0-0.25 per cent. The Reserve bank of Australia has also lowered its interest to 0.5 per cent. Japan, one of the closest and economically most significant neighbours of China, has also announced contingency measures to offer aids of nearly $15 billion to businesses affected by the virus outbreak and public spending of almost $4 billion to prop up the country's economy. After much reluctance, the Bank of England also cut its interest rates last week from 0.75 per cent to 0.25 per cent to fight the scare of the pandemic that has been gripping the country for a while now. The above measures though may not have had the desired effect on the economies of the respective countries as the problem cropping out of the outbreak are more structural in nature, and the excess liquidity may cause spiralling up of inflation rather than spurring growth.

There is now a clear threat that the British economy could go into a prolonged slowdown. Coming out of the Pre-Brexit choppy business environment, the British economy was showing signs of improvement in business fundamentals. People were slowly coming out and starting to spend more money which they did not in the pre-Brexit economic gloom. The country got a new government that had pledged to increase public spending manifold and put the country in a growth trajectory only seen with a select few developing countries in the world. The nature of this epidemic warrants that it is contained as soon as possible. Should it remain out of control of the authorities concerned, it will be challenging to contain its economic fallout.