Coronavirus And The UK Economy

The public sector will not be immune as the need to balance the books force central government and councils to cut jobs, more public sector jobs will be offered on a short-term and/or zero-hour contract basis.

As the economy gradually reopens from the national lockdown and social distancing measures are eased, there should be a significant recovery during the July to October period. However, job losses will intensify and the hopes of policymakers for a V-shaped recovery are likely to be disappointed.

According to the ONS, companies are in a worse shape today than they were in the run up to the global financial crisis: net private non-financial profits were just above 9 per cent at the end of 2019, compared to around 11 per cent in 2008.

The end of the furlough scheme will mean that as many as 20% of furloughed workers or close to 2 million people will lose their jobs. Firms that don’t immediately go bankrupt will be reluctant to invest or hire, preferring to retain cash flow to enhance their chances of survival.

Consumers will be facing reduced real wages, greater actual or fear of unemployment and increased debt exposure that will heavily constrain consumer expenditure over the next few years.

Fears of a second or third wave of the virus and enduring social distancing measures will ensure that economic activity will remain significantly below the pre-pandemic level well into the latter half of 2023 and possibly beyond.

Problems will be compounded by a government that has clearly demonstrated it lacks competence and will face an urgent need to reduce the unsustainable fiscal deficit it is currently running.

It is also a government intent on a relatively hard form of Brexit that will add further significant damage to an already fragile economy. One can hope for the best, but I fear the worst and most prolonged recession in living memory is the most likely outcome.

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