Economic Impact of COVID-19, Government and Bank of England Responses, and Brexit on UK Economy

This report analyzes the economic impact of COVID-19 on the UK economy, the major responses of the UK government and Bank of England, and the impacts of Brexit on the UK economy. It also provides recommendations for the future.

Contemporary Business
Environment

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Assessing the main economic impact of COVID-19 on the UK's economy...............................3
The major economic response of the UK's government and their economic implications.........4
Assessing the major responses of the Bank of England and their implications to the UK’s
economy......................................................................................................................................5
Impacts of Brexit on the UK’s economy.....................................................................................7
Recommendations.......................................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Business environment defines as any kind of internal or external forces which have an
effect on the surroundings of business. This includes an effect on the functioning of the business
in positive or negative way in order to determine its effectiveness. This report will give detailed
information about the economic impact of the COVID-19. The study shows economic response
of the government and the central bank with economic implications. Along with that report will
give overall information about steps taken by government during lock down to support
individuals and firms. Further, this case study analyse the major responses of bank of England
and their implications. At last, the report examine various impacts of Brexit on the UK's
economy and outlines some recommendations.
TASK
Assessing the main economic impact of COVID-19 on the UK's economy
The impact of Covid-19 puts bad impact on UK economy it had effected their production
services and most of the companies had to shut down their business. There are many companies
who had faced loss during Covid pandemic and the GDP of UK economy had reached at low
(Nikitina and Lapiņa, 2019). The GDP had declined by 9.8% in the year 2020 and broken the
record of all last three hundred years. In the time of first lock down the GDP of UK economy
was 25% lower in the month of April 2020 which was also low in the month of February. It also
put impact on summer 2020 which was reflecting the economy (Keogh-Brown and et.al., 2020).
It happened in autumn and winter season because cases were rising day by day and at this time
the lock down was imposed by the government. Most of the businessman had to face huge loss
but there was a less chance to recover this loss.
The time of pandemic had affected various sectors of economy like hospitality and
entertainment and other sector such as financial services (Nicola and et.al., 2020). Those workers
were working at the time of pandemic they also had to face many problems because many
companies had terminated from their office. So there were no employees to work there then how
may the economy be increased. But after recovering from this it seems to be very slow the
growth of economy in the month of summer 2021. The second layer of covid19 puts very bad
impact because it was so dangerous before the first layer. It damages many people’s life and

families lost their loved ones during the time of pandemic (Maital and Barzani, 2020). Also, the
lock down has been imposed at this time so that the country may improve for the upcoming days.
Companies are also facing difficulty in hiring staff because there was no option available
at that time and inflation is rising because of supply problems and it seems that it may be
continued in the upcoming year (Flynn and et.al., 2020). So the consumers may spend less by
which economic growth may be stopped. The most important point on which company may
think that how this pandemic may affect labor market because there is large no of workers work
there. Companies may take less time to recover from this as think like that there is very less
chance of coming third layer which impacts economy (Manzanedo and Manning, 2020). The
economists thought that the GDP growth in the month of September 2021 may be 6.8%. Their
expectations may be increased during summer because the current data is showing that it is
recovering. Also in the month of march 2021 the OBR had showed the GDP is 4.0% and it may
be also published in the government budget on 27 October 2021. This pandemic had affected
many countries especially UK economy and according the report of OBR it may be lower the
level of GDP by 3%.
The major economic response of the UK's government and their economic implications
On 10th November 2020 UK government had announced another national lock down in
England from November 15 to December 2 after seeing the increases cases of covid19. There are
many economic problems which was being faced by people due to pandemic (Hale and et.al.,
2021). Along with it health problems, the company had also faced many problems because at
that time there is very fewer hospitals in which the oxygen supply was not proper so the many
people had died. It is very difficult for UK government to tackle all the situations so there are
many measures which are being given in response to Covid19 (Elgin, Basbug and Yalaman,
2020). The UK government had announced about VAT payments may be due between 20 march
and 30 June 2020. They give the option to choose the deferred in which sums may be paid before
31 march 2021. They are not charging interest and penalties in case of deferral and taxpayers is
not required to take permission from HMRC. The deferral may not apply to VAT payments
under MOSS (mini one stop shop) scheme and may be provided digital services to customers in
EU.
Indirect tax rates and reliefs.

Due to this pandemic UK government announced various schemes related to indirect tax
that they get provided relief related to this (Armitage and Nellums, 2020). The UK has
announced the scheme about different sector related hospitality and tourism in which they had
done that they provide services at lower rates. Also, the rate may be imposed up to 5 % including
food, non-food and non- alcoholic drinks from pubs, cafes and restaurants across all UK. Under
this also include hot take away food and non-alcoholic drinks but not cold takeaway. The overall
rate may apply from Wednesday, July 15 and run at march 31, 2021.
Waiver of import taxes on vital medical supplies
In the month of 31 march 2020 the government of UK decides that they may be forgiven
on the supply of medical and equipment including oxygen meters, ventilators, corona virus
testing kits and protective clothes. This relaxation may be given until 31 December 2020.
Income tax payment deferral
The UK government decides that they may confirm that income tax payments due on 31
July 2020 may be postponed to 31 Jan 2021 which may be introduced in their winter economic
plan (Siriwardana and Dissanayake, 2018). In this income tax payment deferral, payments are
arranged by them where taxpayers are not able to pay their liabilities.
Business rates reliefs
Business rates and non-domestic rates are considered as a property based business tax
which are regulated by UK local authorities in Scotland, England, Northern Ireland and wales
(Contemporary business environment, 2021). Most of the rates are charged on non- domestic
properties such as shops, pubs, offices, warehouses, holiday rental homes and factories. Business
rates may be paid on that time if the building or part of it is used for non- domestic purposes.
Assessing the major responses of the Bank of England and their implications to the UK’s
economy.
The Coronavirus pandemic has caused major social and economic disruption. The bank
of England, took action to help business and to ensure that the business for UK bonds continued
to work. There is various action taken by the government in the first lock down to support
business and individuals.
Ensuring availability of low interest loans

 The bank of England base rate was reduced from 0.75% to 0.25% after pandemic. The
BoE offers a new scheme which says, four-year funding, or very close to, the rate (0.1%).
Due to this scheme, banks were able to borrow an amount up to 10% so that additional
amount was available for banks that increased lending. The bank of England also plays a vital role during lock down, as government supported
large business by purchasing unsecured short term debt. In this scheme the BoE acts as
the treasury's agent in order to support businesses.
Financial policies and treating customers fairly- In order to maintain financial stability the
BoE focus on financial system and assuring the public that they are in a strong position to
provide support. Also, stated the range of measures for daily household activities and business,
which give effective scope to the financial system during pandemic. It is also discussed the
performance of UK financial system during pandemic and financial crisis. The bank published
the financial stability report which shows risks and action it is taking to remove the risks during
pandemic.
 The report states that banks have high levels of capital, allowing them to accept very big
losses while continuing to lend. Later, it is confirmed that to keep rate at 0% for at least
another year in order to help economy. The governor of BoE, stated that home working
and online shopping habits will remain but may rebalance over time (coronavirus:
economic impact, 2021). The UK economy would see reduced levels of investment, that
is why the monetary policy has been focused. In order to develop investment action taken
are quantitative easing and low interest rates. The governor of BoE announced that banks must treats their customers fairly in order to
support every individual. By providing hassle free transactions and any banking related
issue banks must support them. They provide statement on various schemes in order to
support customers and UK economy like dividends statements and share buybacks and
bonuses, fixed rate lending guidelines, guidelines of using electronic signatures, cash
usage and payment facility, statements on the regulatory treatment of CIBILS and credit
risk.
Ensure that the market continues to function.

The government supports banks and building societies to offer leniency to borrowers.
The amount of money that banks are required to hold to protect any losses was reduced from 1%
to 0%. This was a big step taken by government before the pandemic in order to support
business. Thus, in this way BoE estimated that this action would improve banks’ lending
capacity and ensure that the market continues to function. The BoE support the cooperation
between regulators, lending markets, financial services compensation scheme, applying new
term funding scheme, annual stress test, COVID corporate financial facility, repo rates facility in
order to support UK economy.
Government bonds
As the economic impacts of coronavirus become apparent, conditions in the UK
government bond market falls apart. The BoE monetary policy committee works on asset
purchase facility in order to buy UK government bonds. The governor of the BoE needs to take
chancellors permission to extend the asset purchase facility.
Impacts of Brexit on the UK’s economy.
Brexit is the name given to the United kingdom's departure from the European union. The
Brexit is a combination of two words called Britain and exit. On 31 January 2020, the UK have
withdrawn its name from the European union(EU). It was hoped that this could be a first step
towards restoring business confidence.
After Brexit, the UK economy is experiencing many challenges:
 UK GDP decreased by 22.1% which is one of the major challenges faced by them after
being separated from EU. It is also stated that nominal wage growth has reduced by 2%
relative to previous year. It is noticed that due to Brexit, exports to the EU has fallen
down and smaller firms were heavily affected, this is the major reason of low GDP.
 More than 50% of firms experienced at least one Brexit related issue which includes trade
deals, new tariffs, threats to supply chains and increase in cost of products and services.
The country left the EU but had continued to enjoy its previous trade privileges under
various transitional arrangements. Due to Brexit, total exports of goods fell by 19.3% and
total imports fell by 21.6%.
 The major problem faced after Brexit is issues related to the border, such as additional
customs charges, thus this has affect their costs or price. Increased in trade barriers while

moving goods from Britain to Ireland. Costs will rise rapidly if new customs checks
delay goods at the border.
 Additionally, it also affects labour market as the crisis continues to speed up existing
trends. Poorer labour market conditions have ensued, which shows falling number of
workers on the payroll (Brexit: what economic impacts does the literature anticipate,
2021). The number of EU workers coming to the UK has fallen down due to Brexit. So,
this is the major problems faced by UK because of rising unemployment and low earning.
Along with all these the automotive industry is one of the sectors that has experienced a
major downturn due to COVID-19 and Brexit. Re-registration of products for sale in the
EU is the another barrier faced by them.
 Non-tariff barriers are more difficult to assess, it will increase as soon as the UK leaves
the single market. Due to administrative costs, tax issues, customs duties will affect non-
tariff barriers. To evaluate the efficiency losses resulting from these barriers, smaller
production and lower trade which induces losses of various factors. These factors include
economies of scales, smaller trade exchanges ((Alradhawi and et.al., 2020). Lower
economic trade will decrease in innovation incentives, competition pressure, thus this
will result in a lower productivity growth in the UK economy. Hence, it will also affect
GDP level and GDP growth rate. Another issues faced by UK is short term issues, the
increase in import prices may decrease in UK household’s incomes. Thus, it will take
time for UK producers to increase production capacity. Hence, this is a long term
negative effect on GDP will also fall household's consumption.
 If tariff barriers are increased, UK exports will be less competitive, but UK producers
will be more active and competitive to foreign importers. So, lower imports should be
offset by lowering exports, it will affect exchanges rate issues and production. Brexit
would have major impact on health services in the UK. This will create uncertainties to
British citizens living in the EU and put at risk access to vaccines, medicines and
equipments. Another issues faced by UK, there is a great impact on sports field after
Brexit. Any EU citizen wanted to take part in any sport could be required to hold a work
permit. Such permit can be tricky and difficult to obtain, especially for young or lower
ranked players.

Recommendations
On the Top of the pandemic, Brexit has changed economic conditions for UK firms and
UK economy. It is recommended to maintain cash flow management and rapid cost reduction at
workplace. It is suggested to provide additional strategic and operational capacity to manage the
crisis. It is advisable to adopt new technology in order to support citizens and maintain cyber
security to protect firm privacy. Due to unemployment, many employees were affected and
experience major challenges.
In order to recover the situation, it is advisable to introduced Job Retention Scheme to
help employers who cannot maintain their current workforce. It is beneficial to those employers
who cannot handle their workload because their operations are affected by the COVID-19
outbreak.
It is also advisable to handle economic stimulus measures which includes loans, debt
repayments with the help of coronavirus business interruption loan scheme(CBILS). Due to
pandemic, public finances also have been hugely affected so it is necessary to improve such
condition. Another vulnerable group which is affected by pandemic is part-time workers. Thus, it
is mandatory to prioritize helping the lowest-income regions. To improve this, focus on avoiding
permanent job losses and minimizing failures ((Keogh-Brown and et.al., 2020).
It is suggested to improve exchange rate issues, fiscal issue, trade issue, migration issue,
unemployment and efficiency effects. It is also suggested to Detailed assessments of the impact
of Brexit on the economy, Depending on scenarios. The case study identifies the major
challenges faced by economy during lock down and Brexit. This includes exchange rate issues,
fiscal issue, trade issue, migration issue, unemployment and efficiency effects. It studies also
share the firm experience issue in trading with EU such as delays at border and burdensome
administrative costs. At last, it is also concluded about the recommendations on impact of
COVID-19 on UK to deal with issues related to unemployment and economic measures.
CONCLUSION
In the early months, the UK economy has been affected by a national lock down and
Brexit. This report has concluded the economic impact of COVID-19 on the UK's economy. The
case study also analysis the major economic response and their implications. The report gives
detailed assessments of the impact of Brexit on the economy, Depending on scenarios. The case

study identifies the major challenges faced by economy during lock down and Brexit. This
includes exchange rate issues, fiscal issue, trade issue, migration issue, unemployment and
efficiency effects. It studies also share the firm experience issue in trading with EU such as
delays at border and burdensome administrative costs. At last, it is also concluded about the
recommendations on impact of COVID-19 on UK to deal with issues related to unemployment
and economic measures.

REFERENCES
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