Impact of Lockdown, Government Response, Bank of England and Brexit on UK's Economy

This report discusses the impact of lockdown on the UK's economy, major economic response of the UK's government and their impact on the UK's circular flow of income, major responses of the Bank of England and their implication on the UK's circular flow of income and impact of Brexit on UK's economy. It covers the sectors that were impacted by lockdown, the government's response to the pandemic, the measures taken by the Bank of England to support the businesses and the likely impact of Brexit on the UK's economy.

Contemporary business
environment

Table of Contents
Introduction......................................................................................................................................3
Main Body.......................................................................................................................................3
Using the circular flow of income, explain the main impacts of lock down on the UK’s
economy......................................................................................................................................3
What are the major economic response of the UK’s government and their impacts on the
UK’s circular flow of income?....................................................................................................4
The major responses of the Bank of England and their implications to the UK’s economy......6
The likely impact of Brexit on the UK's economy......................................................................7
Conclusion.......................................................................................................................................9
Recommendations............................................................................................................................9
References......................................................................................................................................10

Introduction
It is essential for every company to focus on their economical factor to analyse how it
impacted the business and analyse their negative and positive impacts to mitigate negative
impacts by taking appropriate decision. Covid pandemic is one the biggest threat for every
company to grow well (Kuzin, 2021). This disease impacted bad upon the economy of countries
and decline their growth. Most of the companies get shut down, employability rate increases and
many others negative impacts are there on a economy. It is essential for a government to make
sure that they will mitigate this impacts as soon as possible for the growth of their economy.
Bank of England was founded in 1694 by Charles Montagu. The following report covers impact
of lock down on the UK's economy, major economic response of the UK's government and their
impact on the UK's circular flow of income. This report also covers major response of the Bank
of England and their implication on the UK's circular flow of income and impact of Brexit on
UK's economy.
Main Body
Using the circular flow of income, explain the main impacts of lock down on the UK’s economy
Covid pandemic has restricted the countries to follow lock down to avoid spreading this
disease from one person to another. Due to this pandemic government make rules and
regulations to follow social distancing, lock-downs and many others laws. Due to lock-down
most of the businesses in UK get shut down, most of the people have to lose their jobs, GDP of
nation gets decline, restriction for trading activities and many others (Namvar and et. al., 2018).
Due to all these impacts of lock-down, UK's economy get declined. Every sector in the economy
of UK has to suffer due to lock-down. Hospitality sector which include hotels, restaurants,
accommodation services and many other services get impacted negative due to lock-down
because their main customers are those tourists which arrive from another country for their
travelling purpose and secondly, local travels are also restricted to travel from one place to
another for using hospitality service due to government regulations. Secondly, retailing industry
of UK also get impacted bad by lock down because their stores are the places where lots of
customers gather and purchase products according to their needs. Hence, to follow social
distancing they avoided to reach hypermarkets and supermarkets. They opt online shopping
rather than traditional shopping. Trading activities also get decline which means companies are

not allowed to import their raw material and they are not allowed to export their finished goods
to other countries for their organisational growth which further impacted bad upon overall
growth of UK's economy.
Due to the loss to every sector of UK's economy, the companies focuses to retain their
few talented employees so that they have to pay less salaries to employees and for this they fire
out few of the employees. Due to this unemployment rate get increased which is not good for any
economical development. “Office for Budget Responsibility” estimated that UK's economy get
declined by 35% and whereas “National Institute Of Economic and Social Research” predicted
that UK's economy get declined by 15-25%.
Due to lock-down, the prices of raw material get increased due to which companies have
to purchase high cost of raw material and produce products at higher cost which further forces
company to sale their goods at higher prices to customers. When the prices of goods get
increased then population of UK compromise to purchase few quality and quantity of products
which further impacted bad upon their purchasing power. Hence, purchasing power of customers
also get decline due to Lock-down.
Education sector of UK also get impacted by lock-down because almost every school and
university get closed due to social distancing and lock-down and they started online teaching
which is ineffective for few of the students to understand. Due to online teaching, students are
unable to gain practical knowledge. Most of the students get dropped off from their studies due
to lock down. Hence, the education sector of UK earn less profit as compared to before lock
down.
What are the major economic response of the UK’s government and their impacts on the UK’s
circular flow of income?
Recently, UK is having drastic damage from covid pandemic and the government of UK
has made various laws and regulations for maintaining social distancing like lock- down and
many others. They also force to shut down those shops which are not providing any essential
product, they have closed entertainment industry and many others. Other actions taken by
government to help UK's population from covid pandemic are mentioned below-
 They have given extra funds to charitable trust, public services and National Health
Services.

 Government of UK also support businesses by repayment of sick leaves, reduction on
interest on loans for those companies who have recently started their business before
lock-down.
Recently, UK government has announced a package of £1,000 per furlough employee to
create new jobs within their nation to increase their employment rate (Philip and et. al., 2020).
They also announced that the companies have to pay minimum six month for 25 hours per week
to their every employee and government will help these companies to pay their employees. They
also help their population from hazardous impact of lock down by shifting the loan repayment
date for most of the new SME's which recently get opened and having no earnings due to the
pandemic. There are various kind of schemes such Furlough Scheme, Vat Payment Referral, Eat
Out Help Out Scheme and many others. Few of the schemes by UK government are mentioned
below-
Eat Out Help Out Scheme
This is the scheme for hospitality industry of UK which gets launched in 8 July, 2020.
This scheme is made for the development of hospitality industry and recover their loss which
they face in this pandemic where government has announced to provide funds for 50% food and
non- alcoholic drinks to all restaurants within the UK for three days a week and that is from
Monday to Wednesday (Xu and Xia, 2019). The main aim of this scheme is to motivate
customers to use restaurants and hotel facilities again after lock down by following all essential
laws and regulations. This will further help them to develop the earnings of their hotels and
restaurants well. Under this scheme, overall £849 million was claimed across 78,116 outlets.
Overall claim was 160 million for their meals which means this scheme claims £5.24 per
individual.
Bounce Bank Loans scheme
This scheme was launched on 4th May 2020 to support small and medium size companies
in UK. This scheme is made for those SME owners whose business was running effectively
before the pandemic but get affected badly after covid pandemic which further decline their
profit earning ratio. This scheme is also for sole traders who have faced many financial issues
during the pandemic. The commercial banks of UK provides loans between £2000 to £50,000
(up to maximum of 25% annual turnover) to the owner of businesses in UK. The interest rate for
the loans get decline which help most of companies to take loan and use this funds to cover their

losses well. The benefit of this scheme can be opted by those companies only which are based in
UK and pay their taxes on time. Government of UK also fixed the duration of using all those
facilities which is mentioned in this scheme for 6 years with no additional change in payments or
interest rates.
Job Retention Scheme
This scheme was launched on 20 March 2020 by government of UK to help those
employers and employees who get impacted bad by covid pandemic (Crawley and et. al., 2020).
In this scheme it is mentioned that no employee will gain less than 80% of their monthly salary
during this pandemic. The benefits of this scheme can be taken by all those employers who have
bank account in UK banks and those employer who started PAYE payroll scheme on or before
30 October 2020. Approximately £17.5 billion has been claimed and around 8.7 million
employees have been supported by this scheme.
Vat Payment Referral
This is the scheme for all those businesses in UK which are registered for UK VAT. This
scheme is only for a particular period of time and it allow the business to pay their less before 30
June 2020. It is essential for the companies to file VAT returns.
Self-Employment Income Support Scheme
This was the scheme which was launched by UK government on March 26, 2020. the
benefit of this scheme can be used by those businesses who have faced various financial and
other issues die to this pandemic (Keogh-Brown and et. al., 2020). The employees who earned
their income through self employment can claim taxable grant worth 80% of their monthly
trading profit over the period of three years up to approximately £2,820 for three months. This
scheme is also having second round which was announced on May 29, 2020 for those people
who get affected by the covid pandemic before July 14 2020. Government of UK also announced
various other rounds of this scheme for the benefit of their population to protect them self from
pandemic negative impacts.
The major responses of the Bank of England and their implications to the UK’s economy
The damage that was caused by the pandemic to the economy was on a very high level
and the damage was compensated by the Bank of England as they helped the businesses in
overcoming the challenges that they were facing due to the Covid-19 lock down. The Bank of
England played a huge role as they worked along with the HM government to ensure that the

impact of the pandemic is minimized by working with them. Further the bank took various steps
and measures in response of the pandemic, few of the measures are discussed below: Reduced Interest Rate- The Bank of England has reduced the interest rate by 0.1% which
helped the businesses in acquiring loans at a cheap rate of interest. Further it helped the
people in taking and initiating loans for different purposes which was helpful in
recovering the economy of the nation (Loomba and et. al., 2021). The monetary
committee of the country, Decided that they will increase the holdings of the government
of UK in the corporate bonds by 200 billion euros effective from March 19, 2020. Further
they were looking for extending their support to the small and medium sized businesses
that are there in the UK as they majorly constitute to the economy of the country in a
good amount of percentage. On 11 March 2020, they announced several packages and
measure which were beneficial for them. The merger package of measures was
supported by the HM Treasury's announcement regarding the Covid-19 corporate
financing facility (CCFF). CCFF would give funds to the businesses so that they can
manage their day to day operations and monthly obligations such as salaries, suppliers
and rents. The Monetary Policy Committee has organised a meeting in which the
members voted that the interest rate should be reduced.
 Sustenance of Government bonds- The bank of England is further working with
government to ensure that the country is supporting the large businesses as well in
clearing of the debts. The impact of Covid-19 was high which made adverse effect on the
financial positions of the businesses (Ting and et. al., 2021). The Coronavirus Businesses
Interruption Loan Scheme is for the businesses which are of small and medium size, this
is scheme which helped organisation in clearing off quite a good amount. The
government was giving a guarantee of 80% to the businesses so that they can function
freely in the environment. The financing facility of the Bank of England was that they
were providing short term debts to the companies using a financial instruments called
commercial paper. This amount was helpful for businesses in managing the working
capital requirement so that their functioning can be maintained.
The likely impact of Brexit on the UK's economy
The United Kingdom voted to leave EU in 2016 and they named this policy as Brexit.
There are several consequences country faced due to Brexit which is discussed below:

Immediate impacts: The major impact that the country faced due to the Brexit has caused is due
to UK'S economic growth. Uncertainties and the situations that were unexpected brought several
factors such as growth from 2.4% in the year 2015 to 1.0% in the year 2019. Government of UK
evaluated that the economy growth would be impacted and the growth percentage of the country
would get reduced by almost 6.7% in 15 years of span. There are high risks due to Brexit in the
UK's economy and that impact will be on various sectors includes trade relations with the
countries that comes under EU. After separating from the EU, there were several cost and taxes
that plunged the exports of the good by 41% and further the imports were increased by 29% in
United Kingdom. Gross Domestic Product is one of the areas that is impacted by the productivity
and the actual production that the country has in a particular financial year. Brexit also raised the
expenses of visas and air travel which further impacted the immigration of the country.
Future impacts
According to the OECD Economic surveys in 2016, they calculated that the Brexit
would reduce the UK's per capita income. The present scenario stated that the estimation that
was made in 2018 was that the growth of economy would decrease by almost 2 to 8% in the next
15 years. Brexit deal impacted very trade of the country as the trade policies were changed which
directly impacted the exports and imports of the country (De Ville and Siles-Brügge, 2019).
Right after the Brexit deal, the Gross Domestic Product of UK got severely impacted by and it
shrank with a good amount of percentage. The loss that the country will report at the end of the
year due to the deal would be massive as the trade got severely impacted. UK is not a part of
EU's single market and Customer union, the trade deals with other countries were free. There
were new custom formalities that were developed between UK and EU. The citizens of EU were
not eligible for settling in any part of the UK and further they were not allowed to find
employment in the country.
Foreign investment is one of the major factors that contributes to the positive effects of
the country as this is treated as good financial state of the country. In case of EU and UK, almost
half of the total investment by foreign countries lies in the EU due to which United Kingdom
will loose the share of their investment (Fagan and Rubery, 2018). The UK's trade conditions and
situations has not been changed with non EU countries but still these countries will not be able to
compensate the loss that the UK will face due to the EU countries.

Conclusion
From the above information it is concluded that covid pandemic is threat for any
economy to grow well. Due to lock-downs UK face various changes like employment rate get
decline, GDP reduces, rate of development of infrastructure also declines and many others. Due
to this every sector in UK get impacted bad and their profit earning ratio get decline. It is
essential for every government to focus on this negative changes due to pandemic and make few
of the schemes and strategies to help their economy to grow with rapid speed and cover all the
losses which they face during this pandemic. Few of the schemes in UK which is opted for
development of economy are Bounce Bank Loan Scheme, Eat out Help Out Scheme and many
others. Bank of England also responded well to mitigate the risk of lock-down by reducing their
interest rate and many other strategies. It is also concluded that Brexit also impacted bad upon
UK's economy.
Recommendations
 It is recommended to the government of UK that they can pay more attention to the
people who is below poverty line especially in pandemic time so that they will take care
of their basic needs and requirement so that they will develop this life well.
 It is also recommended to the government of UK that they must focus on creating various
new jobs within their nation so that those who lest their jobs will gain new opportunity to
grab jobs as soon as possible. This will further help UK to develop their employment rate
well for their economic growth.
 It is also recommended to the government of UK that they can pay more attention on the
medical facilities so that covid patients will get appropriate treatment and care. Secondly,
a good medical facility will also help research on covid vaccines to stop this disease to
spread.
 Encouraging entrepreneurs and those businessman who work to resolve societal problems
for the development of society is helpful in economic growth of UK. Making CSR
activities compulsory for the companies in UK will help to develop their society well.
 On the other hand, having more loan schemes will further help the companies to gain
financial help to recover their losses and grow their business again.

References
Books and journals
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social distancing measures designed to reduce the impact of COVID-19 in adults. BMJ
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Currie, C.S. and et. al., 2020. How simulation modelling can help reduce the impact of COVID-
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De Ville, F. and Siles-Brügge, G., 2019. The impact of Brexit on EU trade policy. Politics and
governance, 7(3), pp.7-18.
Fagan, C. and Rubery, J., 2018. Advancing gender equality through European employment
policy: the impact of the UK's EU membership and the risks of Brexit. Social Policy
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Keogh-Brown, M.R. and et. al., 2020. The impact of Covid-19, associated behaviours and
policies on the UK economy: A computable general equilibrium model. SSM-
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Philip, K. and et. al., 2020. Respiratory patient experience of measures to reduce risk of COVID-
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Ting, D.S.J. and et. al., 2021. Psychosocial impact of COVID-19 pandemic lockdown on people
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Xu, J. and Xia, Z., 2019. Traditional Chinese Medicine (TCM)–Does its contemporary business
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Online-
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