The Bank of England has warned that the UK economy is heading for its worst recession on record. Consumer spending accounts for two-thirds of the US economy, and the record decline in retail sales is just the latest sign of a sharp recession that most economists believe has already occurred. Economists at JPMorgan Chase are now predicting that the US economy will shrink by a record 40 per cent in the April-June quarter.
The effects of the coronavirus would shrink the economy by 14% if the easing were eased in June. The scenario, designed by the bank to illustrate the economic impact, states that Covid will slash 19 jobs and incomes in the UK.
The Bank’s governor, Andrew Bailey, told the BBC there would be a swift return to normality. British high street companies, known for their high-quality goods and services, have run into financial difficulties in recent weeks.
It’s a similar story for credit and debit card company Barclaycard, whose monthly spending survey last month showed spending fell 3.5 percent, or $1.2 billion, for the first time since the survey began in 2015.
The GDP report showed that the weakness was caused by sharply falling consumer spending, which accounts for 70 percent of economic activity. While spending on supermarkets rose by 21 per cent this month, consumer confidence fell to its lowest level in a year, with only 25 per cent of respondents having confidence in the economy, up from 42 per cent in February. According to the Barclaycard survey of 1,000 UK adults, spending on travel – including public transport – has fallen by 40 per cent.
Consumer spending fell at an annual rate of 7.6 per cent in February, down from a peak of 8.5 per cent in January, according to the Office for National Statistics (ONS).
The UK economy is facing its deepest recession since the financial crisis, including the worst since comparable records began. With the economy sliding into a seemingly severe recession, some are hopeful that a recovery will occur in time to solve the health crisis – the so-called “V-shaped recovery.”
The central assumption is that as tests become more widely available, restrictions on businesses and the broader population will be eased, helping to identify and isolate sources of infection more efficiently. The government is also expected to introduce measures to boost the economy – boosting consumer spending and getting the economy moving again. These measures should also stimulate business investment, which will otherwise need to peak by 2030.
Britain’s economy will not return to normal until 2023 after the coronavirus pandemic, according to a new report. The UK’s leading economic forecaster, the Institute for Fiscal Studies (IFS), has warned that it is likely to take three years for the UK economy to return to the same size as in the last quarter of 2019.
According to the report, this is seen as a result of the “unprecedented level of spending cuts” in the UK during the lockdown period.
Household consumption also suffered significantly from rising unemployment: people relied on welfare to supplement their income, many shops closed, and household consumption fell by around 15% in the quarter. Unemployment is set to rise to 6.8 per cent by 2020, the highest level since 2014. Unemployment is forecast to rise again this year, reaching 7% by the autumn, although this will slow as the economy recovers from the effects of the financial crisis and the Brexit vote.
With recovery expected in the second half of the year, consumer spending will be about 5% lower this year and in 2020.
Despite the steep drop in spending on the high street, the figures show that key stores remain open. Although Boris Johnson has announced that most shops will remain closed until at least June, figures show that more than a third of them have collapsed in the past three months. Helen Dickinson, chief executive of the BRC, has warned that businesses could close without warning, threatening jobs and harming local communities as many of our main roads remain closed until “at least early summer.”
The expected decline will be largely due to a 14 per cent fall in consumer spending, which has already reached record highs – with prominent retailers such as Cath Kidston and Oasis Warehouse going into administration. Excluding the stores that had to close, consumer spending rose 5.7 percent in the past three months, according to the BRC.
EY warned of the biggest quarterly fall since the last financial crisis in the second quarter. While the economy is expected to grow again next year, EY said the impact could be far worse if the coronavirus continues to affect economies for longer than expected.