Economic Recovery in the UK and the threat of a second wave

On May 10th, Boris Johnson announced new measures which signaled a cautious easing of restrictions across the United Kingdom. Since the beginning of the pandemic, the United Kingdom has amassed 41,862 total cases – higher than any other country in Europe, and among the highest in the world. 

The UK’s response to pandemic has often seemed serpentine and slow.  Professor Neil Ferguson, a former scientific advisor to No. 10, has claimed that 20,000 lives could have been saved had the government followed scientific advice and imposed more stringent lockdown measures only a week earlier. 

Despite this late response, the UK began to ease restrictions with significantly higher cases per capita than their peers. Italy, for instance, had just 29.7 cases per million on May 4thwhen Prime Minister Giuseppe Conte began to ease restrictions.  When the UK took the same step just 6 days later, they had 69.7 cases per million. 

The United Kingdom’s Economic Response and its effects

Like many governments, the United Kingdom announced a suite of economic packages designed to support the economy through the pandemic. According to the Institute for Government, stimulus in the United Kingdom has differed from other countries who have often sought to increase economic demand more generally; the United States, for instance, has tried to incentivize spending through the provision of direct stimulus cheques. Instead, the United Kingdom has decided to implement specific packages that target the most vulnerable of sectors. 

The ‘Eat Out to Help Out’ scheme, for instance, offered a 50% discount on restaurant meals on certain days of the week. The Chancellor, Rishi Sunak, also announced that VAT (Value Added Tax) on food from pubs, restaurants and hotels would be reduced by 15% to 5% until January 2021. 

At the same time, according to the Institute for Government, the threshold for the stamp-duty tax was increased from £125,000 to £500,000 which should boost not only the housing market but also sales of household appliances, fit-outs and related services. 

Data from the Financial Times shows how packages implemented by the UK government have been successful in boosting specific industries. ‘Eat out to help out’, for instance, led to a noticeable increase in consumer spending in restaurants and pubs on Mondays, Tuesdays and Wednesdays in August – when the promotion was in effect. 

The report also shows how measures helped to more generally lift the economy from its March trough. Increased spending in the hospitality and leisure sectors have brought total consumer expenditure above last year’s levels for the first time since March despite an ongoing decline in airline spending, which remains 60% below the previous year. 

The Office for National Statistics provides further evidence of the UK’s economic recovery. According to their report, GDP growth since April has retraced almost half of its pandemic slump, growing by 6.6% in July. Industries where social distancing guidelines remain difficult, such as in travel and entertainment, remain particularly hurt by the onset of Coronavirus. 

Impacts of a resurgence of coronavirus and a second wave of restrictions

On Tuesday the government announced a second wave of lockdown restrictions aimed at preventing a resurgence of the virus. The move came again just too late as Scotland recorded 486 new cases the day after, its highest daily tally since the pandemic began. 

The United Kingdom is reaching a dangerous fork, balancing the steep rise in cases with business leaders insisting they won’t survive another lockdown. Yet both paths threaten the delicate recovery that the United Kingdom had built for itself. Given that the UK is on the cusp of reclaiming economic independence, the pandemic could not have come at a more inopportune time.   

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