Economists vs Epidemiologists: Exploring the Impact of COVID-19 on the UK Economy

Matthew Downes


Following the gradual decline of the number of new Covid-19 cases, economists and epidemiologists have been engaged in a tense debate regarding the appropriate time to remove lockdown. Finding a compromise between public health and financial wellbeing has been a topic of much consideration. Given the gradual phasing out of the lockdown over recent weeks and the continued efforts to return societal function to normal, it is the perfect time to explore the factors driving these decisions from both a medical and an economic standpoint.


When the lockdown was first implemented, an anticipated recession occurred due to the trading activity of many businesses ceasing, from local stores to national conglomerates. As expected, containment policies put in place by the government helped flatten the medical curve while simultaneously steepening the recession curve. While the UK’s response to the virus was lacklustre when compared to other European countries (every European country surveyed believed the UK’s initial handling of coronavirus was inferior to their own), our recession became severe [1]. GDP is currently down to roughly 35% of the pre-crisis level and PwC predicts GDP growth in 2020 to be within the range -8% to -12%. We have seen businesses of all sizes fail due to liquidity issues, contributing to a predicted unemployment total of 3.5 million people by year’s end.


This leads us to question of just how long we will feel the negative impacts of this pandemic and what measures can be taken to reduce this uncertain period. While a “V-shaped” recovery (sharp rise in economic activity back up to pre-crisis levels) was hoped for, a more gradual “U-shaped” recovery is much more likely. 


Some examples of prominent recessions and their recovery time are as follows:


US: 1929-1937 (Great Depression)

UK: 1918-1934 (Great War)

US: 2007-2011 (Housing crisis)


Clearly, there is no set time frame for amelioration as each situation is unique. However, we know an important factor to consider which is intrinsically linked to recession length is how quickly unemployment can return to normal as this is indicative of economic activity. Although with so many businesses filing for bankruptcy, leading to fewer jobs being available, how can unemployment decrease and how can these jobs be created while still factoring in issues of public health safety?


There are many potential ideas that would serve as a good starting point. With the UK’s office for national statistics stating 49.2% of adults in employment are currently working from home, this leads to an increase in demand for services such as home delivery and social care [2]. If this really did become the new normal, even after the crisis has faded, work in these areas could be refined and expanded to suit the new public demand. Existing businesses and new entrepreneurs attempting to find positives out of this situation through innovative job creation and viewing this crisis as an opportunity to creatively address new public demands will be vital for beginning and maintaining an economic recovery. 


References:

[1] https://yougov.co.uk/topics/international/articles-reports/2020/06/01/europeans-think-uk-has-managed-covid-19-poorly-and

[2] https://www.hso.co.uk/leased-lines/technology-news/homeworking-news/50-of-uk-workforce-to-work-remotely-by-2020

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