Is a V Shaped Recovery In The UK Possible?

London economy

Is a V Shaped Recovery In The UK Possible?

Around the world, governments and countries are grappling with a sudden downturn in their GDP due to lockdown measures enforced by the COVID19 pandemic. The severity of these measures varied from country to country, but for the most part, developed economies have all seen such a huge decrease in economic activity causing experts to debate both how and when recoveries will happen.

The United Kingdom is a country that several experts have highlighted as a nation in for some very tough times ahead. They argue that the major sectors of the country’s economy were the ones hardest hit by the lockdown – like hospitality for example. Additionally, some economic commentators assert that the politics of the country led to a slow response to containing the virus, which then further impacted GDP for the worse.

All that being said, there are some elements of hope for this G7 nation’s economy. In fact, the Bank of England’s chief economist not only insists that the UK will stage a V shaped recovery, but the country has already started bouncing back. Bearing this in mind, we discuss the possibility of a V shaped recovery in the UK.

Why could the UK bounce back from the COVID19 Recession?

There are a number of factors that will help support the UK’s economy and put it on a V shaped recovery.

For starters, the stock markets are showing strong performance with the FTSE 100 enjoying its strongest quarter since 2010. What makes this data even more impressive is that in 2010, the FTSE 100 was still reeling from the 2008 financial crisis. The fact that the FTSE 100 has therefore been able to rebound by 9.1% this quarter, directly after the pandemic started sending shockwaves throughout the world, is a very positive sign. So while the index is still down by almost a fifth since the beginning of 2020, it is making some strong gains – and quickly too.

Another factor that will help the UK’s economic recovery is that consumer spending has been stronger than expected since the lockdown measures were eased somewhat in May 2020. Interestingly, where the UK’s population spent its money was quite different to pre COVID days, thus pointing to a change in consumer behavior. While restaurants and pubs were still largely closed, supermarkets did exceptionally well thanks to people staying at home and practising their home cooking skills. DIY supplies and other household products were also bought in far higher quantities. Lastly, car and house sales seemed to rebound immediately after a relaxation of lockdown measures. All this spending is very beneficial for the economy – wherever that spending takes place.

Plus there have been some very positive figures with regards to the country’s productivity. While it obviously is yet to fully recover, the Bank of England’s chief economist cited that the 25% fall in activity that was seen during the months of March 2020 and April 2020, has started to turn around since May. He claims that about half of the fall in output has already been regained. These upbeat figures, in particular, signal that this economic recovery could well be V shaped.

What is stopping the UK from staging a V shaped recovery post COVID19?

However, there are a number of factors that will act as a drag on the UK’s ability to stage a V shaped recovery. Depending on the size and strength of these factors, the economy’s recovery could very well look more like a W or an L.

For example, the country already has a high level of unemployment which is a figure that is only getting bigger. In June, this number grew by 621,000 people, which when combined with previous month’s figures, means the number of people in employment fell by 2.1% since February 2020. Additionally, the type of jobs that are being lost will play an important role in the country’s recovery. Job losses in 2020 have tended to be in lower paid roles and for people with lower incomes.

Plus, these job losses come in spite of the Government’s huge financial package to help support workers’ jobs. This package allowed employees to be furloughed whilst still retaining 80% of their wages. Therefore, the inference of continued job losses is that the stimulus packages still weren’t enough to support the lack of demand for goods and services during lockdown.

The Government’s financial aid, despite the support it intended to give, will also cause the economy huge issues in the future. The sheer size of how much the government has spent in an attempt to prop up huge parts of the economy is unprecedented. The level of spending seen this year has only previously been seen in both World War One and World War Two. Arguably, the packages will have blunted how deep the economy could have fallen in the first place. But while the aid may also help maintain confidence and market sentiment, the level of the eye watering debt cannot be underestimated.

Finally, one of the biggest problems that the UK faces in terms of its economic recovery is the fact that whilst consumer spending has started to improve – it is still quite slow. This is particularly the case when considering that the population was not able to partake in normal life for a huge portion of 2020. The worry is that consumers are too afraid to go out and spend money like they would have done ordinarily. Fears for health and well being has caused more people to stay home and there has undoubtedly been a huge shift in consumer behavior. This shift will cause more businesses to close with continued job losses that further exacerbate the wounds of a recession.

Is a V Shaped Recovery In The UK Possible? – The Bottom Line

As ever in the case of economics, so many factors come into play that all can have huge effects on GDP. In unprecedented times such as these, they are particularly finely balanced. Yet, balancing up these arguments is key to seeing the potential in the UK’s ability to bounce back from one of its sharpest economic downturns ever seen.

While there is no doubt that the glimmers of hope that will put the UK’s economy back on track are definitely there, it can be argued by many experts that those glimmers are not as strong as they should be. And those glimmers of hope need to be strong, given they will struggle in the face of the country’s huge debt burden and rising unemployment. Either one of these factors will always act as a drag on a nation’s productivity. When the two of them are put together, they can be a potent and long lasting mix.

And, of course, there is still one big cloud on the horizon of the UK’s economy, and every other country in the world. There is still no workable Coronavirus vaccine. The prospect of a second spike in infection and further lockdown measures are therefore still a very near and present danger to both human life and economic output.

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