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UK economy: one year from the start of the first blockade

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A year after Boris Johnson imposed the first coronavirus blockade, the UK economy stands on the brink of a rapid vaccine-driven recovery. But the legacy of the crisis is likely to be felt for some time, and perhaps forever.

Since the prime minister announced the restrictions in March 2020, the country’s economic assets have been closely linked to progress in fighting the virus, although families and companies have become much better at adapting to disruptions and working remotely.

What happened?

Disease and blockages were a powerful combination in creating the worst annual production decline in 2020 for more than 300 years.

The UK produced 9.9 per cent fewer goods and services than last year, much larger than any contraction since the concept of gross domestic product was created in the early 20th century and only rivaled by very harsh winters when MB was an agrarian society.

Linear graph of annual change% showing that the UK economy shrank the most in three centuries

It was also the most uneven economic downturn since comparable enrollment began in 1997 with pharmaceutical, research and distribution services growing rapidly as production in travel and hospitality collapsed, reflecting targeted constraints in customer sectors.

Higher wage workers, such as occupational occupations, mostly continued to work from home, while younger, lower-wage workers were more likely to have lost their jobs or become angry.

Yael Selfin, chief economist at KPMG consulting, said: “The poorest households have seen the biggest drop in profits during the pandemic. . . requiring many people to use any small security savings they had. “

To protect livelihoods, the government responded with an unprecedented 2 352 billion package that pushed the public debt-to-GDP ratio to 97.5 per cent, the highest level since the early 1960s.

Where are we now

In January, the value of goods and services produced by the UK economy was still 9 per cent below the pre-pandemic level a year earlier.

This is worse than in many peer countries and as different methodologies complicate the comparison, the Office of Budget Accountability, the UK’s independent fiscal observer, said: “The main reason the UK has suffered a greater economic blow from the pandemic “It’s just that the UK has experienced higher levels of infection, hospitalization and virus deaths than other countries.”

Society has learned to adapt over the past year, with circle half of businesses in the hospitality and entertainment sector continue to operate in early 2021, compared with only 20 percent in the first block.

Consumer spending also shows a smoother contraction in recent months than in the spring, with 35 percent of online retail sales now – 15 percentage points more than a year ago.

Workers have been largely protected from the full force of the recession thanks to the government scheme that has protected incomes as output collapsed. Paul Dales, the UK’s chief economist at Capital Economics, said the job-holding scheme had been “wonderful” and “more successful than anyone, perhaps even the chancellor, imagined”. He added that his success could make it politically unacceptable to allow unemployment to rise in the future.

The full impact of the pandemic has also been offset by the end of the Brexit transition period, which has contributed to a significant decline in trade.

The following i bn graph showing household incomes in the UK were much more stable than expenditures

Where are we going?

A rapid spread of vaccines, falling infections, extending public support until 2021 and the planned reopening of businesses are all showing a strong economic recovery later this year, as most of the rest of Europe faces the threat of a third wave.

In the first quarter of next year, the economy will be 12 percent larger than it is today, the OBR forecast on March 3rd.

In the coming months, much depends on the extent to which consumers start spending again, including more than 160 160 billion of accumulated bank savings thanks to lower spending on travel trips, trips and dinners abroad.

Bank savings column chart, monthly change (£ billion) showing that UK households have accumulated a significant stock of savings since March

If they spend less, the government will be put under pressure to further stimulate the economy and the Bank of England will consider imposing negative interest rates. But the pressure will rise for rates to rise if households spend freely, as Andy Haldane, the central bank’s chief economist, expects.

Andrew Goodwin, an economist at Oxford Economics consulting, said the surplus savings were “in the wrong hands – a large part of them stay with richer people who are less likely to spend it”.

Despite the strong response, the OBR predicted that GDP would remain 3 per cent below its pre-pandemic trend in 2024, meaning the virus would bring lasting damage to the UK economy, with fewer jobs and less productivity. and poorer business opportunities. He said these wounds would be caused by lower investment, higher unemployment and lower population growth brought about by the pandemic.

The line graph of UK real GDP forecasts for Q4 showing GDP is now projected to recover faster, but the long-term damage estimate remains unchanged

Those who think the indentations will be lower are estimating that the economy will return to normal soon. Dales is among the most optimistic on this front, noting that unlike the financial crisis in 2009, credit supply has increased, rather than decreased, and workers have kept in touch with their employers. “We are unusual when we think there will not be many scars,” he said.

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