UK economy slump

In 2020, the UK economy shrank by 9.9 percent, the worst it has been since The Great Frost of 1709 when the UK’s economy shrank by 13 percent. The ongoing outbreak of COVID-19 in the UK as well as dealing with Brexit has proved a major challenge over the past year and will likely continue to for the foreseeable future.

The economy throughout 2020…

The UK economy has faced a slew of issues over 2020 and ongoing coming into the new year, such as COVID-19, Brexit, and an economic slump. The sharp drop of the UK’s GDP surpasses that of the 2007-8 financial crisis, where only about half the damage was done compared to 2020. Lockdowns were the main culprit for such extreme economic consequences, with key sectors such as retail and accommodation struggling to keep up. Luckily a double-dip recession was avoided towards the end of the year when restrictions were relaxed leading up to the holiday season.

In November UK GDP dropped by 2.3 percent, but the relaxation of restrictions allowed for the growth of 1 percent, which is what saved the economy from experiencing a double-dip recession, data from The Office for National Statistics shows. It was a common trend throughout 2020 for the economy to begin to recover but then fall the other way once new restrictions were implemented to combat rising numbers of positive COVID-19 cases. COVID-19 is undoubtedly the main catalyst for the UK’s economic downfall in 2020.

The road to recovery…?

PwC Chief Economist Jonathan Miller has expressed that he believes key sectors that have been struggling until now such as retail and accommodation, will continue to face challenges throughout 2021. Many businesses now are calling for the furlough scheme to be carried on until restrictions are fully relaxed, because if not they must make more redundancies or will not survive altogether. However, there are still those who are trying to focus on the potential for the UK to recover by the end of 2021.

Bank of England’s Deputy Governor Andy Haldane expressed their hopes for a recovery in 2021 to the Daily Mail when discussing COVID-19 patients’ death and hospitalization rates:
“By the end of March, based on the current pace of vaccine rollout and government data on vulnerable groups, this risk may have been reduced by as much as three-quarters, and by the end of the second quarter it will be even smaller.”

Another positive that can be considered is the great growth that e-commerce has been experiencing in the UK over the past year. Black Friday Sales 2020 were a success, leaving stores on the high street behind in the dust. Online delivery apps such as Deliveroo and Just Eat have increased in popularity as people turn to order take-out online as restaurants stay closed throughout various lockdowns and tier systems.

Unemployment rates rise…

In the months leading up to December 2020, the unemployment rates reached 5.1 percent, which is the worst it has been for five years. Reports show that three-fifths of those unemployed were under 25s. However, despite this, pay has risen by around 5 percent of the level it was this time last year. The Office for National Statistics also reported an increase of employees who were paid through payroll over the past few months, as well as average pay rising by 4.7 percent. However, this is not expected to be sustained over a long period and will likely drop again.

As the vaccine rollout continues and the furlough scheme is to continue for businesses until restrictions are lifted for good in June, there could be a good chance for sustainable recovery for the economy in the UK. As a trend of economical recovery was seen after each lockdown ended in 2020, if all restrictions are lifted and COVID-19 cases are kept under control, we can hope to see some normality soon.

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