Sunday, July 12, 2020

Upturn expected in 2021 after COVID-19 brings UK economy to temporary standstill

The impact of the COVID-19 virus is expected to see the UK economy contract by 2.6% in 2020, according to KPMG UK’s latest quarterly Economic Outlook, but a protracted outbreak could result in a more severe impact than the downturn experienced in 2008-09. The economy is expected to recover by the second half of 2021 at the latest under both scenarios.

KPMG’s main scenario assumes the public health measures put in place around the world stem the rise in the number of cases by the summer. In this case, it is expected that the economy remains flat in the second half of the year with a strong recovery in the first half of 2021, as uncertainties around the pandemic dispel. This would see UK GDP fall by 2.6% this year, then grow by 1.7% in 2021. However, if the pandemic persists until the second half of next year, GDP could contract by 5.4% this year and by another 1.4% in 2021.

With so much uncertainty about how COVID-19 will develop in the weeks and months ahead, KPMG’s latest forecasts are based on a range of scenarios. However, even in its main one, the effects of the pandemic on global economic growth, consumer spending and business investment in particular, will still be highly significant.

Yael Selfin, Chief Economist at KPMG UK, said: “The COVID-19 pandemic is first and foremost a human crisis but there will also be a very substantial negative impact on the global economy and the UK’s economic performance this year and potentially next, but the economy is expected to recover by the second half of 2021.

“Until we know how and when the COVID-19 outbreak will end, the scale of the negative economic impact will be difficult to quantify. However, it is now almost certain that the UK is slipping into its first significant downturn in over a decade.”

With the latest measures announced by the Chancellor on Friday, the disruption to economic activity in the first half of the year could see unemployment peak at a relatively low rate of around 5.6% in May. KPMG predicts this will then ease gradually to around 4.1% by Q1 next year, leaving the labour market relatively tight again. Protecting jobs and incomes in the short term will provide needed support to besieged households.

Businesses selling consumer goods and services face a dramatic fall-off in demand following the introduction of restrictions on social gatherings and quarantine measures. Importers and exporters will need to cope with the multiple challenges of supply chain disruption, workforce loss and workplace shutdown, all at the same time when the UK’s key trading partners are also heading into recession.

However, low inflation will leave the Bank of England some room for monetary expansion to combat both turbulence in markets and the economic downturn, but with interest rates at record low, more creative stimulus measures will need to be used.

Yael Selfin, Chief Economist at KPMG UK, concludes: “With the UK’s government charged with meeting an ambitious timetable for its post-Brexit trading relationship with the EU, the scope for further economic uncertainty this year was already high. However, the COVID-19 pandemic represents a far more dramatic short-term disruption to growth.

“The impact of the pandemic will be far reaching. It is likely COVID-19 will result in a massive expansion in government debt and this could threaten to dislodge the Government’s original vision to “level-up” the UK economy, long after the pandemic is past – leaving the Chancellor with a big challenge on his hands.”

A message from the Editor:

Thank you for reading this story on our news site - please take a moment to read this important message:

As you know, our aim is to bring you, the reader, an editorially led news site and magazine but journalism costs money and we rely on advertising, print and digital revenues to help to support them.

With the Covid-19 lockdown having a major impact on our industry as a whole, the advertising revenues we normally receive, which helps us cover the cost of our journalists and this website, have been drastically affected.

As such we need your help. If you can support our news sites/magazines with either a small donation of even £1, or a subscription to our magazine, which costs just £33.60 per year, (inc p&P and mailed direct to your door) your generosity will help us weather the storm and continue in our quest to deliver quality journalism.

As a subscriber, you will have unlimited access to our web site and magazine. You'll also be offered VIP invitations to our events, preferential rates to all our awards and get access to exclusive newsletters and content.

Just click here to subscribe and in the meantime may I wish you the very best.






Latest news

New contractor sought as Coalville Newmarket construction pushed forward

North West Leicestershire District Council (NWLDC) is looking to appoint a new contractor to finish the nearly-complete Newmarket in Coalville. Westone Housing Ltd had been...

University Centre completes in Grantham

Work to create a University Centre to deliver higher education and skills training in Grantham is now complete. Degrees, high-level apprenticeships, diplomas and short courses...

Leicester’s City Mayor lobbies Government for extra business support

Leicester's City Mayor is lobbying Government to provide more support to local businesses after it emerged the Government does not intend to provide extra...

Success in adaptation – stories shared: By Fiona Duncan-Steer, founder of RSViP

Fiona Duncan-Steer, founder of RSViP Business Networking Agency, discusses adaptation in lockdown. Topics I have been immersed in recently, as I am sure many of...

New partnership to link good causes, businesses and radio

Derbyshire-based Investors in Community has joined forces with LLR Media (Love Local Radio Media) to form a new partnership. The charitable giving platform helps to...

Related news

Improvement notice served to Rolls-Royce after safety breaches at Derby site

The Office for Nuclear Regulation (ONR) has served an Improvement Notice on Rolls-Royce Submarines Ltd (RRSL) for procedural safety breaches at its Derby site. The...

New contractor sought as Coalville Newmarket construction pushed forward

North West Leicestershire District Council (NWLDC) is looking to appoint a new contractor to finish the nearly-complete Newmarket in Coalville. Westone Housing Ltd had been...

University Centre completes in Grantham

Work to create a University Centre to deliver higher education and skills training in Grantham is now complete. Degrees, high-level apprenticeships, diplomas and short courses...

Leicester’s City Mayor lobbies Government for extra business support

Leicester's City Mayor is lobbying Government to provide more support to local businesses after it emerged the Government does not intend to provide extra...