UK’s Economic Recovery from Covid forecasted to be amongst the slowest.

The Organisation for Economic Co-operation and Development’s (OECD) biannual summary has recently shown the extent of the economic decline in Britain according to the Financial Times.

The UK is predicted to feel the effects of the coronavirus pandemic significantly more than other leading economies along with countries such as Argentina. The international organisation mentioned in their economic outlook that most of the world economy would regain the lost output from the crisis by the end of next year. However, the UK would be remarkably behind leading economies, where their economy towards the end of 2021 would still be 6.4% smaller when compared to Q4 2019.

What does the OECD do?

The Organisation for Economic Co-operation and Development (OECD) is an international organisation that wants to stimulate the global economy and world trade. They also promote policies that improve the economic and social welfare of people in nations. The OECD also focuses on helping governments:

• Improve the confidence in markets along with the institutions that help them function
• Achieving future sustainable economic growth by maintaining healthy public finances.
• Attaining growth through environmentally friendly, innovation and sustainability.
• Providing resources to society to develop skills in becoming productive.

How does the UK compare to other countries?

The OECD predicts that China’s economy will be 9.7% larger compared to what it was at the end of 2019. Along with China seeing a growth in their economy, other countries in Asia such as South Korea and Indonesia are expected to see growth as well. Moreover, the US are not far behind, where they are expected to lose 0.1% and the Euro area will lose 3%. But, none of the nations mentioned will be as far behind as the UK and Argentina with them being 6–8% lower than where it was in Q4 2019.

What might have caused this?

One possible reason the UK’s recovery may take longer compared to other countries is the way the government controlled the spread of Coronavirus. The way the UK has handled the coronavirus crisis could have potentially affected the recovery of the UK’s economy compared to other countries such as South Korea. The nation immediately placed the country under lockdown to curb the spread and has implemented a strong test and trace system.

The problem highlighted in the article stated that the UK’s government allowed the virus to spread along with implementing lockdowns. During these lockdowns, the UK population spent more time in households instead of working, which has had an enormous impact on the economy. An initial economic shock was caused owing to the fact that people could not work, contributing to the fall in GDP. Despite the government schemes to encourage consumption such as the Eat Out to Help Out Scheme, the UK is still far behind other countries because there are still a high number of cases in the country, hindering business, especially in the retail and food industry. People are unable to consume goods and services due to the restrictions placed in the UK. This would have almost definitely been a factor in the UK falling behind other leading economies.

What will this mean for the UK?

The consequences of a longer recovery will be that there will be slower economic growth. This may mean there is a slower increase in living standards and that the inequality may increase between the rich and poor. People with lower incomes may experience more difficulty during this period, which is also magnified by the inflation of goods due to the new Brexit trade deal. Along with this, people may be laid off due to companies finding a way to save money and will borrow more money from the government in order to be able to afford basic needs.

References:

C. Giles. (2020). UK economic recovery from Covid crisis forecast to be among world’s slowest, Financial Times, [Online]. Available: https://www.ft.com/content/f2655b26-c493-463e-9df6-1210cebc28b9