With lockdown enforced nationwide in March, the UK economy saw the largest drop in a single month since records began in 1997. Gross domestic product (GDP) plummeted by 20.4% in April and by 19.1% in May, three times greater than the total decline of the 2008-09 economic downturn.
The Office for National Statistics provided official figures that show a negative performance for the first quarter of the year, capped by a 5.8% fall in March. This fall signalled that the UK is on the precipice of a recession, which is defined by two consecutive quarters of negative growth.
In the face of a potential recession, businesses are concerned about how they will fare and whether they’ll be able to survive. Unemployment has been rising rapidly and now stands around 6%, compared to 3.9% from the most recent official data from the Office for National Statistics. The unemployment rate could potentially rise to its highest level since the mid-1980s due to the reduced demand for retail and hospitality works, a long-term impact of COVID-19. Andrew Haldane, Chief Economist and Executive Director of Monetary Analysis and Statistics at the Bank of England, stated that these workers may not necessarily be able to switch easily to other forms of employment and that this could lead to labour shortages in other parts of the economy, which could push prices up for consumers even further.
Forecasters from EY Item Club, who are using a similar economic model to the Treasury, have stated that unemployment will rise to 9% from 3.9% and could take until 2024 to return to the level it was before the UK went into lockdown. Although, last month, it was estimated that the economy will shrink by 8% this year, it is now estimated to be 11.5%.
The reasons for this are: consumers are more cautious than previously expected, the rising level of unemployment and the low levels of business investment. All this signifies that it is likely to take 18 months longer for the economy to get back on track, but forecasters state that it is early days.
However, since the nationwide restrictions began to ease in June, the UK economy has recovered ‘roughly half’ of the COVID-19 hit. Business surveys and other data has suggested that the recovery rate is at 1% a week. Haldane stated that “we have seen a bounceback. So far, it has been a ‘V’. That, of course, doesn’t tell us about where we might go next.”
With businesses reopening, there is hope that the economy will see a distinct positive impact and recover to a level where the threat of a recession is adequately diminished. Employers have become more positive this month about making decisions regarding hiring and investment, according to the Recruitment and Employment Confederation (REC)’s recent JobsOutlook survey. Employers confidence in hiring and spending grew to a net level of four, up from minus nine last month.
This positivity is set to increase as more businesses open and jobs become available, kickstarting the recovery of the economy. Although employers are remaining more positive and focusing on rebuilding, strengthening and adapting to future-proof their business, they remain wary of a potential second wave of COVID-19.
This pandemic has not only shifted the way consumers think and their behaviour, but also business strategies and planning with regards to expanding their markets and engaging with customers. These behaviours and strategies are likely to continue into the “new normal” and have the potential to change the way businesses operate in the future.