Economic impact of the COVID19 and the economic response of the government and central bank

The report summarises impacts that COVID-19 and Brexit have on economy of a nation. The report highlights economic impacts of COVID-19 and likely impacts of Brexit in present as well as future era. Moreover, it assesses economic responses undertaken by government and Bank of England to deal with the situations.

Economic impact of the COVID-
19 and the economic response of
the government and central bank

EXECUTIVE SUMMARY
The report summarises impacts that COVID-19 and Brexit have on economy of a nation.
British economy contracted by 1.5% and relatively modest contraction shows that the nations
was in midst of strict lockdown that impacts working of businesses, people and industries. The
report highlights economic impacts of COVID-19 and likely impacts of Brexit in present as well
as future era. Moreover, it assesses economic responses undertaken by government and Bank of
England to deal with the situations.

Contents
EXECUTIVE SUMMARY.............................................................................................................2
Contents...........................................................................................................................................3
INTRODUCTION...........................................................................................................................1
DISCUSSION AND ANALYSIS...................................................................................................1
1. Impact of COVID-19 on economy of United Kingdom..........................................................1
2. Major economic responses of Government of UK and their implications..............................3
3. Major responses undertaken by Bank of England and implication of them on economy of
UK................................................................................................................................................5
4. Likely impacts of Brexit on economy of UK..........................................................................7
CONCLUSION................................................................................................................................8
RECOMMENDATIONS.................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
COVID-19 pandemic and Brexit has led huge impacts on economy of worldwide and
presents unprecedented challenges for nations. In these, government of a nation has undertaken
certain responses to mitigate adverse impacts and manage economic conditions (Sharma, Talan
and Jain, 2020). COVID-19 pandemic is the situation in which coronavirus disease has spread
with alarming speed by infecting millions as well as bringing economic practices to near
standstill as nations imposed huge restrictions on movements to halt of virus spreading. At same
time, Brexit is withdrawal of UK from EU that has dropped British exports to 19.3% as well as
imports fell by 21.3%. Purpose of the report is to gain insights about economic impacts that
COVID-19 and Brexit has on UK along with responses of government and Bank of England to
improve economic situations in the country.
The report explains key economic impacts that COVID-19 has on economy of UK and
responses of government on the situation. It also analyses like impacts of Brexit on economy and
some recommendations to government on forthcoming events.
DISCUSSION AND ANALYSIS
1. Impact of COVID-19 on economy of United Kingdom
The world is more integrated at present era than ever before. When information and data
could spread rapidly, so can viruses. In UK, around 6.2% of adult population or 3.2 million
people are facing enduring effects of coronavirus which harm their wellbeing together with
ability to work (Makin and Layton, 2021). The disease hurt general wellbeing and financial
health of people which make it difficult for them to manage day to day living. Long pandemic
has debilitating effects on circular flow of income across UK that makes daily life extremely
challenging. Due to lockdowns, people restricted their spending and purchasing of non-essential
products. The pandemic restricted flow of people, information, products and money to function.
1

Figure 1: Impact of COVID-19 on employment rate in UK. 2021
(Source: Impact of COVID-19 on employment rate in UK. 2021)
The above statistics shows that labour market of UK is highly impacted because of
COVID-19 pandemic. Unemployment level in the country has increased in initial months of the
pandemic while employment levels has fall to great extent. In UK, young workers as well as
people aged above 65 are left employed. However, larger rise of unemployment is seen for those
people who are aged between 25 to 64 years. Within the country, number of population claiming
unemployment based advantages fell by 58600 in July 2021, nevertheless remains around
945600 million higher than March 2020 (Impact of COVID-19 on employment rate in UK, 2021).
At same time, workers that are disproportionally economically effected due to outbreak of
COVID-19 pandemic includes women, disabled workers, ethnic minority group and so on. It is
because all these tends to carry out operations in sectors of economy which suffered most from
physical distancing restrictions addition to shutdowns, including retail, leisure, hospitality, etc.
At same time, low paid staff along with workers from minority ethnic backgrounds have suffered
huge impacts, stoking fears which lasting legacy of pandemic is to entrench inequalities.
2

COVID-19 has had long lasting impacts of businesses. There are various businesses that have
collapsed due to the pandemic. Around 41.3% of businesses are reported to be temporarily
closed because of lockdown in the nation. It is determined that the pandemic impacted sales of
large business and sales are predicted to be material across all sectors (Awofeso and Irabor,
2020). However, businesses in various sectors including accommodation and food, transportation
and leisure are severely impacted. Organisations in these industries projected likelihood of vast
negative impact on sales volume. At same time, businesses in health and administration has
faced smallest impacts.
Figure 2: Probability of COVID-19 having impacts on sales of business over next year by
industry. 2021
(Source: Probability of COVID-19 having impacts on sales of business over next year by
industry. 2021)
The above statistical image presents that COVID-19 impacts adversely on sales of
business of different sizes. It is determined that larger probability of impacts of the pandemic on
sales volume are on businesses in accommodation and food industry as the spread of virus
generated substantially uncertainty for the ventures (Probability of COVID-19 having impacts on
sales of business over next year by industry, 2021). However, business that could face lowest
impacts are from health, administration and support.
3

2. Major economic responses of Government of UK and their implications
COVID-19 pandemic touches each and every aspect of business, society addition to
technology. In the situation, effective and stable government is heart of managing through the
crisis. During the crisis, government of UK acted quickly as well as decisively, even with face of
restricted data or information. At same time, government is facing problems of emergency
management, citizen engagement and continuity of operations. Within UK, government played
key role in managing crisis through encouraging emergency preparedness, enhancing integration,
empowering citizens and eliminating institutional overlaps (Elgin and Et. Al., 2021). The
pandemic reflects complex social along with behavioural challenges that are not only
technocratic issues. In this, government employees and population of United Kingdom are
grappling with threat of contracting infection and dealing personal loss. It is analysed that
effective coordination mechanisms among governments are critical. Major economic responses
undertaken by UK’s government and their implications are as analysed:
Job Retention Scheme: It is one of economic response undertaken by government of UK
to make grant to employers of the nation for covering around 80 per cent of wages of human
resources whom they continue to make payments but otherwise have been laid off due to
outcome of the crisis. It is one of major instrument used in the country with the hope of
stemming labour market impacts of crisis (Uddin and Et. Al., 2021). In economy of UK,
implementation of job retention scheme implies limiting losses in employment as well as
averting surge in unemployment. The measure results in preserving jobs at organisations
experiencing temporary decline in activities through reducing labour costs as well as supporting
income of personnel whose hours of work are cut back.
Use of the measure has been unprecedented and making investment in the scheme reflects
providing protection to entities and employees against cost of imposed restrictions, wider social
distancing measure, etc. it was used as cost effective tool in order to preserving employment
which were temporarily at risk of being destroyed. In the economy of UK, the scheme permit
ventures to make adjustment in working hours at zero costs, widely reducing number of
occupations at termination risk as an outcome of liquidity constraints (Greer, de Ruijter and
Brooks, 2021). Furthermore, the scheme resulted in providing stronger support that
unemployment advantages of employees that temporarily lost jobs, mitigate financial hardship
for number of workers and support aggregate demand.
4

Mortgage Holidays: COVID-19 pandemic left huge population facing substantial loss of
income. To manage the economic situation in UK, government responded through making an
announcement that all household owners can claim holiday from their monthly repayments of
mortgage. Mortgage holiday is a situation at the time when mortgage payments of a persona are
paused for specific time period. With this scheme, government responded to assist people
struggling to meet payment of mortgage as an outcome of pandemic (Giles, Arnold and Greeley,
2020). At initial level, implementation of the scheme implies decline of £ 33.6 billion of
mortgage lending to £ 21.3 billion in June and to £ 6.2 billion at end of September 2020. With
passage of time and everything going steadily, number of customers engaging in mortgage
holiday scheme decreased and trends says that they acted by caution at initial of pandemic
despite of needs. Certainly, mortgage holders which undertaken payment holiday sees their
requests in credit files that affects their creditworthiness.
Furlough Scheme: It is government response towards stopping millions of population
being made redundant during pandemic. Under the scheme, government pays around 80% of
regular salary or wages to employee for the duration that are not employed, with no employer
from employer or organisation. The purpose of the measure was to retain superior-subordinate or
employer-employee which links as organisations experienced low demand due to restrictions
based on public health (Aduhene and Osei-Assibey, 2021). One of reason to undertake the
economic measure by government was to permit stronger and faster recovery at the time of
liftment of the restrictions. With implementation of the scheme, it is implied that labour market
of UK has recovered that enhances risks which scheme slow down employment reallocation
leading to driving economic growth. Within UK, many employers made use of the scheme. It has
resulted in fluctuations in number of part furloughed jobs between 0.7 million to 1.6 million
approximate. It also supported jobs temporarily that are impacted by coronavirus pandemic.
Increment of universal credit: In response to COVID-19 pandemic, £ 20 in a week
enhance to universal credit has been bought for supporting people with low incomes was
introduced as Increment of Universal Credit (Wolff and Ladi, 2020). The response of
government was an advantage for working age population and was introduced to replace other
benefits that are income support, working tax credit, income based jobseeker’s allowance, child
tax credit, etc into one payment. It implied that government focused on assisting people which
are fuel poor. It has been determined that universal credit increment impacted positively on
5

enabling families to break free from poverty. At same time, working families were benefitted
with the measure to see increase in incomes.
3. Major responses undertaken by Bank of England and implication of them on economy of UK
In economy of UK, Bank of England function for maintaining monetary stability as well as
oversee financial stability of financial system. It acts as lender of last resort and custodian of
official gold reserves within UK. There are various financial institutions that work as per
guidance of Bank of England that assist an economy to exchange products and services for
money or another kind of financial assets (de Jong and Ho, 2020). It lowers transactions costs
together with perform as financial intermediaries to bring borrowers as well as savers together.
Bank of England has announced huge number of policy measures that are specifically designed
for helping financial market participants of UK to deal with effects of COVID-19 crisis. In the
crisis situation, Bank of England implemented certain responses for easing operational burden
that are posed through key regulatory obligations pertinent to businesses in order to free them to
manage practices against challenges presented to broader economy by pandemic. Measures
undertaken by the institution raft actions which are announced by government of the country to
deal with pandemic. Some of responses undertaken by Bank of England in the situation of
COVID-19 and their implications of economy of UK are discussed below:
Reduced interest rate: It is one of measure undertaken by the financial institution in
which interest rate was cut to 0.1% from 0.25% (Bank of England cuts rates in emergency move
to combat coronavirus impact, 2021). Holding of UK government along with corporate bonds
were enhanced by Bank of England by £ 200bn for lowering borrowing cost. Lower interest rates
by the institution implied cheaper loans for households and organisations which reduced various
costs faced by these in the country. At same time, Bank of England offer banks along with
building societies funding for long term at interest rate close to 0.1%. With this, more funding is
provided to other financial institutions to enhance lending. Along with this, the bank provides
additional support to other financial intermediaries which offer more lending of funds to small
and medium ventures. Lower rates together with additional quantitative easing kept markets of
UK’s economy satisfied along with borrowing cost down.
Sustenance of government bonds: When economic impacts of COVID-19 in UK
became apparent, situations in government bond deteriorated. In response, another measure
undertaken by Bank of England is to sustaining government bonds. In this, Monetary Policy
6

Committee of the bank voted unanimously for extension of the Asset Purchase Facility with the
help of which BoE holds United Kingdom’s government together with corporate bonds through
£200 billion and taking it to £ 645 billion in total (Allen-Coghlan and McQuinn, 2020). This was
funded with the help of printing money. Moreover, most of extra money by BoE was used to
sustain government bonds and reminder was opted to purchase corporate bonds comprising debt
issued by the organisation. In the economy, government bonds help in funding deficit in federal
budget along with raise capital for other projects that includes spending in infrastructure. Also,
government bonds are sustained by the central bank so to secure investments and support
practical projects.
4. Likely impacts of Brexit on economy of UK
Brexit was withdrawal of UK from EU. United Kingdom is first and only sovereign country
to have left European Union, after 47 years of been number state of bloc addition to its
predecessor (Anguera-Torrell, Aznar-Alarcón and Vives-Perez, 2020). In this aspect, some of
immediate and future impacts of Brexit on UK’s economy are as follows:
Immediate impacts: At present era, no EU-UK trade deal results unprecedented downturn in
economy of UK. It is analysed that UK GDP shrank through cumulative 22.1% in 2020 which is
worst affected economies. Without trade deal, businesses of UK face new tariffs while carrying
out trade practices with EU, that puts threats to supply chains along with enhance cost of
products at worst possible moment for economy (Awofeso and Irabor, 2020). Brexit impacts
adversely on economy of the nation as it ensues poorer labour market conditions, namely falling
number of employees on payroll and individuals working for fewer hours and making less
earning that gives rise to unemployment rates. Moreover, fiscal landscape is deteriorated
markedly that reflects less policy flexibility for mitigating economic shock of negotiations
among EU-UK trade. With implementation of the decision, Britain’s products trade deficient
with EU fell short of £ 25.3 billion. Exports of the country also face loss of preference while
major players or rivals in EU keep the benefit. It is analysed that Brexit would create wider
uncertainty in markets as well as reduce confidence of consumer more than it developed.
Future impacts: In future, Brexit has more chances to leave impacts on economy of UK as it
wold have effect growth of economy largely. It is determined that Brexit will launch new barriers
and regulations to trade with EU in form of nontariff and tariff barriers that are more potential to
reduce trade flows along with restrict economic growth. GDP of UK would contract around 1.4%
7

in 2021, 0.4% in 2020 prior growth returns in the year 2023 (Phan and Narayan, 2020) (Alozie,
Ideh and Ifelunini, 2020). At same time, no trade deal results would lower GDP of UK to 904%
by 2025 that reflects deep pressure on economy in upcoming years. In all industries, Brexit will
potentially impact by reducing investment and causing recession. Moreover, businesses
operating in UK are more likely to face manpower issues that included migrated workforce as
well as shortage of skilled workers. Organisations might incur additional tariffs along with
administrative charges that might interrupt their supply chain negatively.
CONCLUSION
From the mentioned information, it could be concluded that COVID-19 crises impact
economic activities of a country in adverse manner. The pandemic has large disrupted travel,
employment, shipping, financial markets and number of industries. It effected day to day living
of people and put huge risks on employment. Ability of ventures to continue hiring and
compensating workers is precarious at the time when government supports to be withdrawn. In
order to respond the crisis, government of UK undertaken various economic measures that are
Job Retention Scheme, Mortgage Holidays, Furlough Scheme and Increment of universal credit.
At same time, bank of England responded towards impacts of the crisis through reducing interest
rate and sustaining government bonds. Brexit also impacted adversely in economy of UK as it
reduced national income by 0.6% and 1.3%. adverse. Uncertainty of Brexit resulted in volatility
and impacted businesses carrying out operations in UK as they are subject to pay huge for tariffs,
increasing costs of materials and finished commodities out.
RECOMMENDATIONS
To government of UK, some of recommendations on deal with future occurrence of
COVID-19 and Brexit are underneath:
 Protecting efficacy of health system: It is recommended to government of UK to protect
efficiency of entire health system of UK to deal with future occurrence of the pandemic.
With this, government can emphasis towards letting the disease circulate while slowing
transmission including masks, nursing barriers, isolation as much as possible. Herein,
objective will be to prevent intensive care units from overwhelmed so to maintain
essential economic practices (Blakeley, 2020). It will imply extended closure of non-
essential services together with strong confinement of remaining population.
8

 Looking after population or citizens: It is recommended to government of UK to manage
occurrence of COVID-19 and Brexit in future through looking after citizens of the
country. The government must consider that all the people are their priority and should
act as employer for all in future. The nation is on cusp of treated similar to most other
nations where immigration is restricted, despite of being perceived as location where
access of talent is stress-free (Narlikar and Sottilotta, 2021). In this essence, government
should take risky attempts by not giving up on truly distinctive competitive benefits to
access skilled workforce that is significant for national prosperity.
9

REFERENCES
Books and Journals:
Aduhene, D. T. and Osei-Assibey, E., 2021. Socio-economic impact of COVID-19 on Ghana's
economy: challenges and prospects. International Journal of Social Economics.
Allen-Coghlan, M. and McQuinn, K. M., 2020. The potential impact of Covid-19 on the Irish
housing sector. International Journal of Housing Markets and Analysis.
Alozie, C. E., Ideh, A. O. and Ifelunini, I., 2020. Coronavirus (COVID-19) pandemic, economic
consequences and strategies for ameliorting macroeconomic shocks in Nigeria’s
economy. Economic Consequences and Strategies for Ameliorting Macroeconomic
Shocks in Nigeria’s Economy (September 21, 2020).
Anguera-Torrell, O., Aznar-Alarcón, J. P. and Vives-Perez, J., 2020. COVID-19: Hotel industry
response to the pandemic evolution and to the public sector economic
measures. Tourism Recreation Research, pp.1-10.
Awofeso, O. and Irabor, P. A., 2020. Assessment of government response to socioeconomic
impact of COVID-19 pandemic in Nigeria. Journal of Social and Political
Sciences. 3(3).
Awofeso, O. and Irabor, P. A., 2020. Assessment of government response to socioeconomic
impact of COVID-19 pandemic in Nigeria. Journal of Social and Political
Sciences. 3(3).
Blakeley, G., 2020. The Corona crash: How the pandemic will change capitalism. Verso.
de Jong, M. and Ho, A. T., 2020. Emerging fiscal health and governance concerns resulting from
COVID-19 challenges. Journal of Public Budgeting, Accounting & Financial
Management.
Elgin, C. and Et. Al., 2021. Economic policy responses to the COVID-19 pandemic: The role of
central bank independence. Economics Letters. 204. p.109874.
Giles, C., Arnold, M. and Greeley, B., 2020. OECD warns coronavirus could halve global
growth. Financial Times. 2.
Greer, S. L., de Ruijter, A. and Brooks, E., 2021. The COVID-19 pandemic: Failing forward in
public health. In The Palgrave Handbook of EU Crises (pp. 747-764). Palgrave
Macmillan, Cham.
Makin, A. J. and Layton, A., 2021. The global fiscal response to COVID-19: Risks and
repercussions. Economic Analysis and Policy. 69. pp.340-349.
Narlikar, A. and Sottilotta, C. E., 2021. Pandemic narratives and policy responses: west
European governments and COVID-19. Journal of European Public Policy, pp.1-20.
Phan, D. H. B. and Narayan, P. K., 2020. Country responses and the reaction of the stock market
to COVID-19—A preliminary exposition. Emerging Markets Finance and
Trade. 56(10). pp.2138-2150.
Sharma, G. D., Talan, G. and Jain, M., 2020. Policy response to the economic challenge from
COVID‐19 in India: A qualitative enquiry. Journal of Public Affairs. 20(4). p.e2206.
Uddin, M. and Et. Al., 2021. The effect of COVID–19 pandemic on global stock market
volatility: Can economic strength help to manage the uncertainty?. Journal of Business
Research. 128. pp.31-44.
Wolff, S. and Ladi, S., 2020. European Union Responses to the Covid-19 Pandemic: adaptability
in times of permanent emergency. Journal of European Integration, 42(8), pp.1025-
1040.
10

Online:
Bank of England cuts rates in emergency move to combat coronavirus impact. 2021. [Online].
Available through: https://www.cnbc.com/2020/03/11/bank-of-england-cuts-main-
interest-rate.html
Impact of COVID-19 on employment rate in UK. 2021. [Online]. Available through: <
https://commonslibrary.parliament.uk/research-briefings/cbp-8898/>
Probability of COVID-19 having impacts on sales of business over next year by industry. 2021.
[Online]. Available through: < https://voxeu.org/article/economic-impact-coronavirus-
uk-businesses>
11