On the 16th of March 2020, health secretary Matt Hancock announced an unprecedented set of public health measures and restrictions on public life, as he told the House of Commons that “all unnecessary gatherings should stop” to help curb the spread of the COVID-19 pandemic. A national lockdown has never happened in the UK before, raising many questions. One of which was, how would this impact the UK economy in the short and long run? As lockdown has ended, there are many effects that are necessary to review and analyse to be ready for a reoccurrence of such events happening in the future.
The first impact to mention is that GDP in the UK fell by 20.4%. GDP is the total real output of goods and services produced over a given time (usually measured each quarter). This is the largest fall since official records started in 1955. Issues like an increase in unemployment; a fall in consumer expenditure and a reduction in investment due to the lockdown, caused this halt in economic activity. Lockdown has meant that many workers (especially in the hospitality sector) were not able to work which in turn lead to sales of businesses to fall rapidly. This meant that these firms had to make employees redundant to save costs. Hence, from July to September the unemployment rate increased from 4.1% to 4.8% and almost 750,000 jobs were lost since the start of the lockdown.
This meant that many workers had to live off insufficient unemployment benefits leading to an increase in poverty, with single claimants aged 25 or over receiving only £409.89 per month. As well as this, the overall impact on unemployment is yet to be discovered as 9 million people are being protected by the job retention scheme, announced by the government to encourage spending in the economy and incentivise producers to invest. The government provides 80% of an employee’s income using this scheme (to a maximum of £2500), which reduces costs of businesses so that they can prevent workers going redundant, and re-employ workers when firms have enough revenue.
This increase in unemployment caused some secondary cyclical effects such as less total spending and a substantially greater budget deficit. The budget deficit reached £60.3 billion at the end of the financial year in March 2020 and is expected to increase further. As a result of this, UK government Debt climbed to an eye-watering £394 billion. However, this may not be as problematic now, since interest rates have stayed low, meaning the cost repayment is not as significant.
Which sectors where hit the hardest by the national lockdown?
In a survey, 15,000 businesses have said that COVID-19 has had a significant and wide-ranging negative impact on output in April 2020. mainly in the tertiary sector, where services compromise 79.6% of the UK economy.
It shows that nearly every service activity has experienced a fall in real output with the majority having a decrease of more than 20%. This will have a profound impact on the UK economy, as the tertiary sector is the main source of GDP.
The secondary sector is concerned mainly with manufacturing, production, and construction. Due to COVID-19, there has been a 40.1% decline in the construction industry. This led to many businesses being forced to leave the market. However, production and construction only compromise 13.6% and 6.1% of the economy respectively, so this decline is not as significant as the fall in tertiary sector output. Demand in the UK construction industry is low due to other companies selling at lower prices; hence recovery may be difficult in the long run.
Lessons from a second lockdown
With a second nationwide lockdown in November, the UK saw similar restrictions put in place, but suffered less severe economic damage. Economist George Buckley said, “Households and firms are in a better position to adapt more quickly”; businesses who were hit hardest last time around were more prepared to cope with a new set of restrictions. A shorter lockdown also reduced the economic impact, but could prove pre-emptive, as a resurgence in the virus may cause even more severe problems in the long term.
It is important to learn from our past experiences of lockdown, so we are more prepared, but it is also vital that we do not underestimate the power of the virus and do not make decisions that give us short-term economic benefits that turn out to be harmful in the long run. We have reasons to be optimistic, with the UK hoping to vaccinate all over 50s by Spring 2021, which could mark the end of these turbulent times. However, caution is crucial, and as we are now seeing, public health and economic prosperity play hand in hand.
