UK economy suffering most damage since first wave of Covid-19
Britain’s economy is suffering the most damage since the first wave of Covid-19 as persistently high infection rates and renewed lockdown measures delay the economic recovery from the pandemic, according to a Guardian analysis.
Almost a year on since the pandemic spread to Europe, focus is shifting towards how quickly coronavirus vaccines can be deployed, with the UK, for now, among countries leading the pack. Economists said this could increase the likelihood of the British economy outperforming other countries’ later this spring, depending on when lockdown restrictions are lifted.
However, pressure is mounting on the chancellor, Rishi Sunak, to provide further financial support before the 3 March budget as the economic damage intensifies during the prolonged lockdown at the start of 2021.
It comes as tensions between countries increase with regards vaccine supplies, with clashes between the UK and the EU over the Oxford/AstraZeneca jab. Concerns about mutations in the virus have also been growing since the emergence of new variants in England, South Africa and Brazil, leading experts to warn that defeating Covid-19 will require global coordination. As few as 25 doses have been administered across low-income countries compared with 39m in wealthier ones, according to the World Health Organization last week.
In a new intervention, the president of the World Bank, David Malpass, warned governments across the globe that urgent action was necessary to prevent years of development gains being wiped out in poorer nations.
Writing in the Guardian, the head of the Washington-based agency said countries should avoid hardening their borders to allow the continued flow of food and other essentials. “The time is long overdue to shift to practices that safeguard and increase food and nutrition security in ways that will endure. The to-do list is long and urgent,” Malpass said.
Since the onset of the pandemic, the Guardian has chosen eight economic indicators, as well as the level of the FTSE 100, to track the impact of coronavirus on jobs and growth, and the measures used to contain it. Faced with the deepest global recession since the Great Depression, the Covid crisis watch also monitors how the UK is faring compared with other countries. The International Monetary Fund has estimated the UK economy contracted by 10% in 2020, the biggest fall of any G7 country.
This month, the dashboard includes some positive signs after official data showed Britain’s economy shrank by less than expected during the November lockdown, in a sign that businesses have adapted to restrictions. Raising hopes that a double-dip recession can be avoided, gross domestic product fell by 2.6% on the month as hospitality venues operated takeaway services, more shops stayed open than during the first wave, and manufacturing and construction activity continued. City economists had forecast a 5.7% monthly decline.
Analysts said the partial reopening of the UK economy in December meant growth would probably be flat in the final quarter of 2020. At the start of 2021, Brexit uncertainty has diminished after the signing of the EU free trade agreement, despite some disruption. The vaccine rollout is also underway, with more than 7m doses administered so far – among the highest vaccination rates in the world.
Howard Archer, chief economic adviser to the economics forecasting group the EY ITEM Club, said: “The prospects for recovery are looking brighter. Once the economy has negotiated what is likely to be a challenging first quarter of this year, it will undoubtedly benefit from the vaccine rollout helping to boost consumer and business confidence.”
However, there are warning signs that the tougher lockdown at the start of 2021 is inflicting renewed pain on businesses and workers, delaying the economic recovery and undermining Britain’s growth potential.
Ten months into the crisis, surveys of business activity and indicators of mobility levels suggest the largest contraction in the UK economy since the first wave of the pandemic. While more severe job losses have so far been prevented by the Treasury’s furlough scheme, unemployment has hit the highest level in four years, at 5%, with more than 1.7 million people out of work. Almost a million more are expected to lose their jobs after furlough is wound down at the end of April.
Ahead of the 3 March budget, Sunak is facing growing calls from business leaders to extend the wage subsidy scheme, with unions and the former shadow chancellor John McDonnell saying an extension until the end of 2021 is needed to avert lasting damage to jobs and the economy. The chancellor is also under pressure to retain the £20 a week uplift to universal credit to prevent financial hardship for millions.
Hannah Essex, a co-executive director of the British Chambers of Commerce, said ministers needed to keep the furlough scheme open until at least the end of July. “Only with certainty on the future of government support can businesses communities plan ahead and look to restart, rebuild and renew.”