The British Economy Could Take A £800 Billion Hit in The Next Ten Years

A report that in all likelihood is not going to bring any cheers to the British government, the National Institute of Economic and Social Research (NIESR) has released its latest report that stated the private sector in the country could suffer as much as £800 billion in earning losses over the next ten years. The report which has been prepared in the backdrop of the coronavirus pandemic, predicts that the heaviest impact of the economic fallout will be on the employment situation in the country. The institute predicts that the unemployment rate in the country will hit a high of 10.5 per cent this year before stabilising to 5 per cent next year. The institute though acknowledges the efforts being put in by the government to arrest an uncontrolled slide of unemployment in the country, in the shape of various employment and business support scheme but also warns that a prolonged lockdown or a resurgence of the pandemic would nullify all the positives that may be achieved by these efforts. The pandemic, since its arrival at the shore of the United Kingdom has caused massive economic loss to the country. Termed by many leading national and international financial institutions as the worst economic fallout than even the 2008 financial crisis, the pandemic could very well leave scars on the British economy that will take decades to recede. Till now the pandemic has infected more than 161,000 people in the country out of which at least 21,500 have already fallen victim to it.

The report published by the institute also predicted that pandemic would also impact the government’s public debt situation severely. It is worth mentioning here that the government has announced several schemes worth several hundred billion pounds of which most would likely be financed from debts raised by the government. In addition to that, the government had also made a very ambitious infrastructure rebuilding programme that it had announced during the time of budget presentation in mid of March this year, which had already set out an expenditure target of £650 billion for the next few years. The way the situation is developing has a lot of similarities to the 2008 financial crisis. At that time also severe value erosion had taken place in the country’s banking system, requiring massive bailout funds to be doled out by the government. The public debt situation at that time became so bad that successive governments had to adhere to strict austerity measures to progressively retire away the massive debts that had piled up in the books. This time also it is being predicted that the government will have to launch a massive austerity drive spanning over a number of years to fully compensate for the aggressive spending it is undertaking to support the economy now. It would be very hard now for the Boris Johnson government to walk through the ambitious growth expenditure drive, it had promised the British people in the pre-pandemic era.

The report, however, is highly sceptic of the time period before the pandemic is brought into control. The institute is of the opinion that the long-term losses to the economy could be unsurmountable should the pandemic continue to linger for long, or if there is a resurgence. If the medical community across the world is to be believed, then the Covid-19 coronavirus strain is going to stay with us for a long time and will resurface as soon as the conditions become rife for its growth. They suggest that the only plausible solution to this pandemic is an effective vaccine, which will make us immune to this virus strain. The pandemic might very well slow down in a couple of months but could be back again by the end of the year. The prediction scenarios thus contemplate that the pandemic will die down in the next couple of months following which the lockdown conditions will be eased, and life will be normal again, which would not hold good. The best-case scenario thus is that a vaccine is ready as soon as possible, and most of the citizens receive shots before resuming their day to day lives. Currently, the most promising vaccine candidate is an Oxford University led research team which is working round the clock to roll out one by the month of September this year.

Before the National Institute of Economic and Social Research (NIESR) several other British institutions of eminence had come out with similar reports, which spoke of both the short term as well as long term impact of the pandemic induced lockdown conditions on the economic health of the country. The office of the Budget Responsibility, the official watchdog of the government which analyses and theorises the implications of the official budget of the country and studies the workings of the department of Exchequer, had made several observations recently on the various stimulus announcement made by the government. The Office of the Budget Responsibility reported that the British economy is set to shrink by as much as 35 per cent in the quarter April to June this year when the effect of the pandemic is expected to be at its highest, and for the whole year of 2020 the economy will shrink by 13 per cent. On the employment front, it predicted that massive job losses ensuing out of the lockdown would result in the number of unemployed increasing by about 2 million, which is roughly 10 per cent of the current workforce. The NISER is however hopeful that the economy in all likelihood will bounce back by next year given the timely corrective measures taken by the government.

The worst impact of the pandemic is perhaps being felt by the export-oriented business in the country. Domestic small-scale industries like restaurants, pubs and movie theatres will benefit from the governments furloughing scheme, but businesses like Airlines, Cruise shipping, Holiday and Leisure will be facing a long-term downturn because of the cascading effects of the pandemic. The IMF predicts that the world economy will shrink by 3 per cent this year before any recovery can be expected next year.