As the International Monetary Fund (IMF) predicted a 10.2 per cent contraction of the UK economy in 2020, economic watchers said the country’s economy hit harder by the COVID-19 pandemic than previously thought could take longer than expected to recover.
“Even with the relaxation of some COVID-related restrictions on economic activity, a degree of precautionary behaviour by households and businesses is likely to persist. The economy, and especially the labour market, will therefore take some time to recover towards its previous path,” the Bank of England said.
Helen Dickinson, chief executive of the British Retail Consortium, was concerned about the situation now, because two weeks after most shops reopened in England, footfall is still only half what it was a year ago, reports Xinhua news agency.
“By European standards, Britain’s recovery remains slow,” she said.
Official statistics showed that the GDP contracted by 2.2 per cent in the first quarter, the worst contraction in 41 years, and the economy shrank by a record 20.4 per cent in April.
The Organization for Economic Co-operation and Development forecast a slump of 11.5 per cent of GDP in 2020 in a single wave scenario.
Lockdown restrictions have led to sharp falls in economic output.
Aviation, manufacturing, hospitality, retail and construction have been hit hardest. Demand for air travel in April and May collapsed and most planes were grounded. Non-essential shops could only rely on online sales during the lockdown period.
Prime Minister Boris Johnson put the country on lockdown on March 23, banning non-essential travels and closing schools and shops to limit the spread of the coronavirus.
The government has gradually lifted the lockdown since mid-May, allowing non-essential retailers to reopen since June and pubs, bars and restaurants to resume business since July 4.
Faced with a battered economy, the government has introduced unprecedented measures to support businesses and individuals.
By the end of June, more than 9.3 million jobs have been protected through the coronavirus job retention scheme at the expense of 25.5 billion pounds.
Small firms in retail, leisure and hospitality industry are exempt from business rate for 12 months.
The Bank of England made emergency interest rate cuts from 0.75 per cent to 0.1 per cent and increased its bond-buying program by 300 billion pounds.
Last week, Johnson set out a 5 billion pound plan to fuel economic recovery by upgrading the country’s infrastructure.
On Wednesday, the government announced a policy package that includes a six-month cut in value-added tax for hospitality and tourism sectors.
Although more timely indicators suggest that the country’s economy started to recover from the trough in April, many economists warned that the second quarter may be worse than the first quarter’s drop, as evidenced by April’s massive fall.
The economy is likely to contract around 17 per cent quarter-on-quarter in the second quarter, but can expand close to 10 per cent in the third quarter, said Howard Archer, chief economic adviser at EY ITEM Club.