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Ironical as it may sound, but the lockdown conditions in the country have made things more affordable for the average British citizens, with the exception that no one is coming out to buy them. Peoples income has taken a hit because of the lockdown and no work. Nobody is liking the situation though, but little can be done given the fear of life and stricture of the government regarding the lockdown. There are several sectors which are having a tough time holding on to piles of inventory and others are facing the problems of paying staff who are not working. Of course, there are few who are doing brisk business due to the nature of their service and their importance in the fight against the pandemic. The government though has taken steps so that people do not lose jobs and business do not go bust, but with the extension of the time period till the lockdown is in effect in the country the efficacy of these provisions would wane by the day. The pandemic till now has infected nearly 133,000 British citizens out of which around 18,000 have succumbed to the infection. Given the increase in the number of infections in the country, the British government late last week extended the lockdown in the country by another three weeks.
In the basket of commodities which constitutes the wholesale price index in the United Kingdom, most are witnessing a regression in prices. The most important commodity fuel has been witnessing a record fall in prices. The price of crude oil in the international markets is at an 18-year low, and the wholesale prices of refined products are also at an all-time low. Similarly, the wholesale prices of gas and electricity have also slumped to a very low figure with some small utility companies already passing on these benefits to their consumers. In the case of general merchandise except for food and essential toiletries, the demand for all other goods has come down significantly. The government has restricted the movement of goods other than food and medicine essentials which means that even online retailers are being restricted from selling non-essential goods. The stockpiles of these non-essential goods are just lying idle in the warehouses with no signs of them going out any time soon. Other goods and services which are not part of the wholesale price index have also got a similar story to tell. Restaurants, movie theatres and bars, which see very high activity levels and entails a lot of casual spending are also closed with some even coming near to the brink of bankruptcy. It seems that the pandemic situation is also having an adverse effect on the psychology of the people. The general public is now more wary about the future state of the economy and is less confident about the security of their job, and as a consequence, they are spending less money on non-essentials and waiting for better times to prevail before they come out of their homes and life becomes as usual.
The fall in demand conditions is a very serious issue in an economy; if the inflation conditions continue to fall for more than a couple of quarters, it could lead the country to go into recession and producers and suppliers would start cutting down on their production capacities to adjust themselves with the new demand scenario. Should such an event happen, the return on investment on capital employed in the country will fall below unacceptable levels leading the pessimism and flight of capital from the country. The British government has understood this and has taken a host of measures to arrest the falling demand levels in the country. The government understands that falling employment levels is the biggest risk the country faces at present. Ever since the first stimulus package was rolled out by the government in the first few days of March, the government’s focus had been on protecting jobs. In the first stimulus package, the government had made provisions that small business owners could avail of cash injunction in their businesses to pay for 80 per cent of the salary of their staff if they retained them through the crisis period, which amounted to up to £2,500 per employees per month. After a few days, it rolled out an even grander scheme, whereby it asked the Bank of England to guarantee business loans taken by large business houses who are facing difficulties due to the business shortfall. The loan amount however would cover only the salaries of staff and other expenditures and not for retirement of other debts held by these companies. The scope of the first scheme was extended later on for bigger companies as well, as it was found out that several large companies would be ineligible for the loan guarantee scheme because of their poor creditworthiness levels.
Despite the above-mentioned initiatives taken by the government, the unemployment level in the country is expected to soar. The number of people applying for government welfare schemes has been piling up at its offices. The Office of the Budget Responsibility, the official watchdog of the government which oversees the country’s budget spending and forecasts its efficacy has made a prediction that in the April to June quarter this year the GDP of the country is expected to shrink by as much as 35 per cent and 13 per cent for the whole year. It also expects that unemployment in the country would jump by as much as 2.0 million, which is about 10 per cent of the country’s workforce. All the above numbers are worrisome and indicate to the country facing an elongated recessionary period.
The relationship between inflation, employment and GDP growth is pretty straight forward. If inflation drops for an elongated period or becomes negative, there is a greater chance of unemployment level rising in the country. If the employment levels are too high, for too long, there will be a greater chance that the country will enter into a recession. The falling inflation level is a dangerous sign that the British government must ponder on and take immediate corrective measures to address if it wants to avoid a significant economic pitfall.
