What Will It Take To Fully Recover From The Coronavirus Slump?

Experts predict the recovery to be slow and long drawn.

• UK Chancellor calls for three Rs to revive the economy under recession
• British economy contracted by a record 22.2 per cent during H1 2020
• However, economic output grew by 8.7 per cent for the month of June 2020
• Stock market reacted positively, with the June’s recovery news, discounting the H1 2020 recession
• Recovery will not be V-shaped: Suren Thiru, British Chambers of Commerce
• Pandemic to have an impact on the living standards of people: Resolution Foundation
• Government was slow to respond in containing the pandemic: Samuel Tombs, Pantheon Macroeconomics

Rishi Sunak, Chancellor, UK Treasury has called upon the people to relight the economy, return to work, and reopen the schools. There are early signs of recovery seen through June 2020 GDP (gross domestic product) numbers, which estimated that the economic output grew by 8.7 per cent for the month, as compared to the same month last year in 2019.

Sunak emphasised that there is a need to sustain this growth momentum through the three Rs, while walking on the path to recovery.

He is confident that the country will come out stronger out of this coronavirus led crisis, like it has done many times before in its history. Renaming the new normal as the safe normal, he was hopeful that people will no longer be very nervous (as before) and shall resume going to work, shopping, and restaurants in a well-protected environment.

The Office for National Statistics had confirmed that economic activity bounced back across sectors including retail shops, manufacturing factories, and construction, among others, during the month of June 2020.

The broader cause for concern comes with the latest government data on GDP which estimated that the British economy contracted by a record 22.2 per cent during H1 2020, the sharpest half-yearly contraction ever recorded in the country’s history.

Also Read: UK is Undergoing Economic Recession

There is a long way to recovery: Resolution Foundation

Resolution Foundation is an independent think tank that focuses on improving living standards of people with lower incomes. James Smith, Research Director, Resolution Foundation said that although there is growth coming around with the lockdown restrictions getting eased across the UK, there still remains a long way to go.

The economic damage caused by the lockdown has been unprecedented. Despite re-opening, firms are still not able to perform to their best potential. There is also a greater uncertainty about the end of the ongoing health crisis. All these factors could slow down the recovery, in the Foundation’s opinion.

It goes on to add that the coronavirus pandemic is going to have an impact on the living standards of people, the magnitude of which will depend on the number of job losses across the economy and the duration for which these people remain unemployed.

The Foundation has estimated that the wealth per family has been hit by £3,200 for Britishers, after the coronavirus induced lockdown.

The UK economy’s bounce back now will depend more on the strength and the speed of economic recovery than the size of the crash in economic output.

Markets reacted positively

Despite the news of the economic recession, that the country entered with a second quarterly fall in the GDP for the period of April to June 2020 by 20.4 per cent, stock markets reacted positively. This strength came partly from the June numbers that displayed growth.

The FTSE 100 jumped up by 1.5 per cent, touching 6,244.97 points on 12 August 2020 at 1.30 PM, as the government released its second quarterly GDP data for 2020.

However, the pound crashed after the economic recession announcement. The British pound to US dollar ratio was down to $1.3043 from $1.3047 at 8.45 PM on 12 August 2020.

Economists’ reactions vary

Dr Kemar Whyte, senior economist, National Institute for Economic and Social Research said that a long period of economic growth is needed to make up for the loss of GDP in recent months, because of the coronavirus led economic crisis. He applauded the government actions that involved significant monetary and fiscal support and said that it had been aiding the recovery.

However, Samuel Tombs, chief UK economist, Pantheon Macroeconomics had a different view. He said that government was slow to respond in containing the pandemic. It put the country under lockdown much later than required, because of which the lockdown had to be imposed for a long period, which significantly curtailed the country’s economic output.

Suren Thiru, head of economics, British Chambers of Commerce said that there are very bleak prospects of a V-shaped economic recovery. Once the government support, especially in terms of furloughed employees is withdrawn, the real damage caused to the economy would start to show up. He added that the government should continue to pump money into the UK economy at this very tender stage of development.

Government support measures

The UK government has provided a lot of support to the sluggish economy during the pandemic period. Let us take a close look at the most popular schemes and their impact.

The coronavirus job retention scheme was launched on 20 April 2020 to furlough employees of struggling businesses and retain their jobs by 80 per cent salary-support from the government.

According to latest available HMRC (Her Majesty Revenue & Customs) statistics, 9.6 million people had been furloughed under the furlough scheme with a government expenditure of £34.7 billion by 9 August 2020.

Under the eat out to help out scheme, a total of £53.7 million was claimed for 10.5 million covers by 9 August 2020.

To add to this, UK government had released £13.41 billion by 9 August 2020 under its coronavirus business interruption loan scheme for a total of 59,520 business applicants.

Further, the coronavirus large business interruption loan scheme gave away a grant of £3.40 billion to 497 large businesses by 9 August 2020.

The government’s bounce back loan scheme had approved loans worth £34.96 billion by 9 August to a total of 1,157,296 companies.

Additionally, as of 3 August 2020, a total grant of £10.83 billion was provided to 882,920 business collectively under the two government schemes namely the small business grants fund scheme and the retail, hospitality, and leisure business grants fund.

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To sum up, the UK economy has a long way to go to fully revive from the deadly impact of the coronavirus pandemic. It slumped badly during the first half of the year 2020, displaying a contraction of 22.2 per cent for the period. While the GDP growth for June 2020 is encouraging, however, it might take further support from the government for the struggling economy to come back on a steady growth trajectory.