A survey of finance chiefs at the largest UK firms has shown a grim picture of the economy, as these financial heads of the businesses do not expect revenues to return to pre-crisis levels for at least a year. Their expectations are that the outbreak of Covid-19 would reduce the sales of the surveyed businesses by more than 20 per cent this year. The business confidence has slumped to such a level that 9 out of 10 CFOs are of the view that there is the high or rather very high level of insecurity confronting their business. The survey revealed that around majority, 94 per cent of the CFOs are not willing to take any risk and around 98 per cent are of opinion that businesses would reduce their capex in the current year. Though there are some positives as well, CFOs have expressed their optimism for the easing of the lockdown by this and the next month and demand in their own sectors to start gaining pace afterwards. To mitigate the major fallout, two-thirds of the finance heads have emphasised the need of cost reduction. They have also said that this crisis has shown a new hope in the form of flexible working.
As per the WHO data, by the mid day of 4th May 2020, 182,264 people were reported impacted by the Covid-19 in UK and 28, 131 had lost their life so far. The report also showed that nation had 4,806 new reported cases, which shows that there is still long way to go for the containment of this deadly disease. On 23rd March 2020, Prime Minister Boris Johnson had declared a police-enforced lockdown for coronavirus containment in the United Kingdom (UK). Many consumer-centric firms were forced to temporarily suspend their operations, while other businesses were also required to scale back their operations and shut down for a period. The British government proposed a package of fiscal initiatives in an atmosphere of heightened uncertainty to give significant support to companies and households. The Monetary Policy Committee (MPC) cut the base rate by 65 basis points to keep it at an all-time low level of 0.1 per cent and raised its quantitative easing stimulus package in response to the hysteria over the coronavirus outbreak in financial markets.
Recently, the British government forecasters, the Office for Budget Responsibility (OBR) came up with its latest report, showing that gross domestic product (GDP) of the nation would fall by around 35 per cent in the second quarter, and dropping by almost 13 per cent in the financial year as a whole. There has been serious concern being raised levels for the living for the people in the country, which is likely to be worse than the early part of the financial crisis witnessed in the year 2008. Also, the unemployment is likely to hit 10 per cent level by the second quarter of the year. Also, there are predictions that the and borrowing of the government in 2020 would rise at a highest pace since the second world war.
Bank of England had already cautioned against the possibility of long-term economic harm due to the extreme financial disruption caused by the Covid-19 spread. During the first half of this year, the Central Bank expects global GDP to fall sharply as the virus has spread to more than 180 countries; however, there is still not enough proof of the precise magnitude of the coronavirus crisis economic shock. The Bank of England had made a decision to raise its bond buying plan by £200 billion to a total of £645 billion, financially backed by central bank bond issuance. That included the purchase of UK government bonds and investment-grade corporate bonds under a quantitative easing plan intended to reduce borrowing rates and inject cash into the economy. In the last MPC meeting, it was unanimously decided to retain the base rate at 0.1 per cent as well as decided to proceed with the £200 billion bond buying plan to raise the total asset purchasing stock to £645 billion. Bank of England reported that acquisition of assets can be further extended to help reduce the impact of coronavirus if appropriate. Experts are of view that BoE will go for more bond-buying by May this year, based on the severity of the effect of coronavirus on the economy. These purchases are intended to stimulate investment activity by reducing the corporate bond yield which reduces the borrowing costs of firms and stimulates new issuance. On 23 April 2020, the Debt Management Office of the United Kingdom, which is the agency involved in the selling of bonds, to boost government revenue to increase public spending, announced a revision of the revenue remit from May to July 2020. The Debt Management Office reported that in line with the announcement of new funds to be collected by Her Majesty's Treasury Department, it would collect £180bn, primarily by selling traditional and index-linked gilts. That came after earlier raising £45bn in the month of April, making a total of £225bn in four months. These are signs of increasing policy pressure, as the last time the country needed to raise so much for public services to help the economy was just after the financial and mortgage crisis of 2008, when bonds worth £227.6 billion were issued in 2009-10.
The OBR talking on the lockdown had categorically stated that economy’s future potential output would be severely damaged, if the period of economic disturbance gets prolonged. The business heads of too had voiced their concern for riding out this tempest and asking the government for setting out its plans to restore confidence among British businesses. The British Chambers of Commerce had even urged the government to extend financial support for an extended period.
Meanwhile, the government has revealed its plans to put business back to work with the help of additional hygiene procedures, physical screens and the use of protective gears. Workplaces would have to introduce extra cleaning. However, British PM Boris Johnson also cautioned that UK must not lift restrictions too soon, adding that the worst thing would be to ease up too soon and allow a second peak of coronavirus. Lots of businesses like housebuilders, retail, fast food and travel etc have shown their willingness to restart work and have started to chart out plans as per the government directives. On the same time Rail unions have written to the PM voicing their concerns about plans by operators to increase the number of trains in service, which they said could put the passengers as well as the railway employees in danger.