Impact of COVID-19 on the UK Economy

Impact of COVID-19 on the UK Economy

UK is the fifth-largest economy around the globe and second largest economy in Europe, with a GDP of $2.74 trillion in 2019, as per the International Monetary Fund (IMF). As per the UN (United Nations), the population of the country was around 67 million in 2019, which is expected to reach nearly 69 million by 2025. UK is a developed economy and is one of the major exporters of mechanical machinery, automotive, electrical machinery, and pharmaceuticals across the globe. UK economy had considerable growth over the years owing to the cohesive government policies, efficient regulatory framework and modest contribution from import and export. European Union (EU) is the largest trading partner of UK, followed by the US. As per the World Bank, in 2018, UK exports of goods and services was 30.0% of the GDP, accounting a total export of $490 billion. The healthcare spending of UK was around 7.2% of the GDP, which was around $190 billion in 2019.

PRE-COVID-19 SCENARIO OF EUROPE

In June 2016, UK decided to withdraw from the EU; and exited the EU on January 31, 2020. A slowdown was expected due to the ‘Brexit’ as many companies were planning to shift their headquarters from UK to other European economies, as the country is expected to lose the ‘trade free’ status in Europe. Apart from this, the companies were concerned about the bidding on public contracts in any of the EU’s country, post Brexit. This, in turn, has led to the movement of companies out of UK to other European countries. Several other concerns were proposed post Brexit, which includes the high cost of airfares, the internet, and phone services, among others.

The economy of Europe was growing at a modest growth rate prior to the outbreak of COVID-19 pandemic. As per the IMF, in January 2020, the GDP growth of UK was 1.3%, both in 2018 and 2013. Furthermore, it was projected that the GDP will grow by 1.4% in 2020 and 1.5% in 2021. In addition, the IMF outlook has reduced the growth rate projections of various countries including India, the US, Germany, Spain, Mexico, and China as compared to their fourth-quarter outlook of 2019. Though, no similar reduction in GDP growth was projected for UK in January 2020 in the outlook. As per the Office for National Statistics, the food sector is making a significant contribution, led nearly $91 billion to total UK manufacturers’ product sales in 2018. In addition, the production of machinery and equipment increased by 1.8%, and reached nearly $36 billion in 2018. This has led to the increased revenues from the production of machinery for construction, mining, and quarrying industry.

CURRENT SCENARIO: IMPACT OF COVID-19 ON UK

The outbreak of the COVID-19 pandemic has hit several economies across the globe. China was the first to get affected followed by Iran, the US, and other European economies. UK, Italy, France, Spain, Germany are among the most affected countries due to the COVID-19 pandemic. As per the Worldometer, in UK, more than 276,000 positive COVID-19 cases were registered, and nearly 16,500 fatalities were recorded till June 1, 2020. The cases of COVID-19 were quite lower till the last week of March 2020, after this, the number of COVID-19 positive cases and the mortality rate increased exponentially in the country.

Owing to the COVID-19 pandemic, the country announced a partial lockdown. On March 20, 2020, the government announced the shutdown of all schools, restaurants, clubs, and other leisure facilities in UK. On March 23, 2020, the Government of UK announced a lockdown and banned all ""non-essential"" travel and contact with people in the country. Moreover, the government announced the shutdown of businesses and places of worship in UK, in response to the continuous increase in positive cases of COVID-19 in the country. In preparedness of the COVID-19 treatment of increasing patient base, the country ordered a huge number of medical equipment and PPE kits. The country took several significant measures to contain COVID-19 pandemic, which includes the delivery of millions of home testing kits via Amazon to the self-isolating people to test them for the COVID-19. The Government of UK has bought 3.5 million test kits for the same. As of now, Germany has the capacity to test 500,000 tests per week to which the country wants to increase to 200,000 tests a day.

SEGMENTAL BREAKDOWN

The outbreak of the COVID-19 pandemic, originating from China, has put a threat to the macroeconomic stability of European countries. UK has significant trade relations with the European countries and with the US, China, Japan, and India. Trade between all these countries has increased significantly in the last two decades. However, the impact of COVID-19 pandemic is expected to affect most of the industrial sector which will affect the trade in the country. Uncertainties over COVID-19 pandemic control keeps the economies under pressure; however, it is expected that it will be controlled in the first quarter of 2021. Post COVID-19, there are several sectors that will outpace with significant growth and improve their downfall by the end of 2020. The retail, automobile, and manufacturing sectors are expected to cope to a certain limit after the collapse.