Comprehensive Report: Impact of COVID-19 on the UK Economy and Policy

This report examines the multifaceted impact of the COVID-19 pandemic on the UK economy. It begins with an overview of the UK's economic structure, emphasizing the dominance of the service sector and the role of government policies in shaping the economic environment. The report then del...Read More

IMPACT OF COVID ON UK
ECONOMY

TABLE OF CONTENTS
INTRODUCTION............................................................................................................3
Government's role in economy..........................................................................................3
Economic data affecting the country..................................................................................4
Impact of Covid 19.............................................................................................................5
Economic and Political issues.............................................................................................6
CONCLUSION...................................................................................................................7
REFERENCES....................................................................................................................1

INTRODUCTION
The study is about economic framework existing within the country and the measures
government has been taking to improve the situation. The study highlights the impact of Covid-
19 on UK economy and the measures being taken to improvise the situation. The economic
statistics being used for gauging the present situation and techniques to better the statistics have
been discussed. The country also has an inter-relation between political and economic issues
which has been emphasized.
Government's role in economy
The government forms policies which suit the economic environment of the country. The
economic environment of the country is as such that the main component of economy is service
sector which comprises of finance and business services, airlines, consumer focused industries
such as retail, food and beverage and entertainment industry. Another main component of
economy has been tourism in UK. The contribution of agriculture is seen to be very less in GDP
comprising only about 0.60 %. Speaking of manufacturing and production, its contribution is
also not of a high percentage in nature. The government makes the policies as such that the
sector which is faring well for e.g. the services sector in UK should be expanded internationally
and get more potential clients to increase business (Minford, 2019). Thus, it can do a tax
reduction in services sector, lessen the lending rates for it to increase investment and expansion
of business and provide some benefits like easing up of licenses, reducing red tapism etc.
Speaking of sectors which are not performing well like agriculture government tries to extend
help by easing out situations on land clearance matters, giving farmers subsidies on manure,
fertilizers and seeds, making technology available to help ease in farming, allocating monetary
resources for providing water supply through tube wells , sprinklers etc. Government also uses
measures to improve the interest of youth in farming activities by introducing courses which can
provide training by experts and use a combination of organic and scientific methods of farming.
Although the contribution is very less of agriculture, so government has to import food grains
from other countries to complete the shortage. Similarly, speaking of manufacturing sector, as
the country is not producing enough products, they have to collaborate and import from other
countries (Brown, Rocha and Cowling, 2020).
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Speaking of imports and exports, the discussion can come to two terminologies the government
focuses on i.e. Balance of Payments and Balance of Trade. The Balance of Payment signifies the
transactions made between a country with rest of the world countries over a time period such as
a quarter or a year. These transactions may be between individuals, companies or governments
outside the country. It consists of all the imports and exports, of foreign remittances, payments
etc. The Balance of Payments and economic policy are interrelated (Minford, P., 2019). A
measure taken by UK government to attract foreign investment in manufacturing sector or
keeping currency rate low to stimulate exports for e.g. food division manufacturing is doing well
in UK. All the policies impact are captured in Balance of Payments. Payment imbalances and
foreign direct investment have to be addressed by policy makers as key issues and sum of all
transactions to be zero regarding entries in the two accounts of Balance of Payment that are
current and capital account.
UK has been facing imbalance in Balance of Payments for more than a decade with current
account deficit looming large on the economy. The exports have been much low compared to the
imports which has caused the deficit (Brown, Rocha and Cowling, 2020).
ECONOMIC DATA AFFECTING THE COUNTRY
UK Economy Statistics Year(2019)
GDP (USD Bn) 2828
GDP(Per capita) 42294
Economic growth 1.40%
Exports 4.8
Imports 4.6
Fiscal Balance -2.10%
Inflation(CPI) 1.8
The data reflect the GDP, economic growth rate and other prominent factors affecting the
economy. The economic growth rate has increased only a margin since previous year of 1.3%.
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The exports have however bettered the imports. Fiscal balance is negative due to current account
deficit. Inflation has been controlled at 1.8%. The GDP per capita income can be stated as high
(Gudgin and et.al., 2018).
Impact of Covid-19 on economy
The global pandemic which started in March, 2020 has affected almost the entire world bringing
the business operations to a halt. Seeing the conditions, majority of the countries including USA
and UK followed lock down with restrictions on public movement and business to stop the
spread of pandemic. This resulted in manufacturing and production halt, halt of shipment
exports and imports with service sector being closed for a duration of around 3 months.
Talking of UK, the virus has affected its travel, financial markets, employment rates,
number of manufacturing industries including shipping. As the UK economy relies mostly on
service sector, the halt caused them to shut down and a considerable decline came in GDP by
economy going down by 11.5% in first wave of covid. The hospitality sector was worst hit and
has suffered large number of furlough. Initially using social distancing measures people were
made to sit on benches distanced but later on at government instructions the hospitality sector
had to close down. Later on, in July they were opened again with social distancing and other
safety measures (Manzanedo and Manning, 2020).
UK's other sector which brought revenues was tourism which again was badly affected
with transport services being shut down. Aviation industry which at the starting of the virus
spread, was following strict regimen of operations with safety measures had to go for temporary
shutdown. Rail travel was earlier reduced with public getting refunds if they canceled their tour
and worked at home, the rail franchisee agreements were nationalized for at least six months.
This was done to save the private players in rail lines. Later on, travel was drastically reduced
with public transport buses also being closed for a duration, Tourist spots which were expecting
turn out of tourists in the vacations were empty with regional businesses facing losses. Local
shop owners thriving on tourism business had to suffer losses with handicrafts suffering the most
(Keogh-Brown and et.al., 2020).
Now speaking of food retail as it is also one of the key revenue generators, UK
newspaper The Guardian had reported that there will be stock supply in advance by retail chains
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in case of panic buying by customers. People were storing food supplies so this sector received
sales more than usual although it was also understood that such measures of storage can have an
adverse impact too with shortages in food supply due to lock down. Hand sanitisers and other
anti-bacterial products received a sudden growth in sales with the super stores keeping stock of
these products as well.
Government measures in wake of Covid 19
The central bank of UK i.e. Bank of England asked the government to support the businesses
affected by the virus. The Bank has been working with treasury to provide economic stimulus
packages to sectors affected by the pandemic. To bring liquidity in the economy, interest rates
were reduced to 0.10% which is at its record lowest. This will help business sectors to get
financing through debt after facing losses in capital. Business running again after post lock down
period will help in generating employment. Governments have always been encourageous in
promoting jobs in retail sector and lowering tax rates for them (Manzanedo and Manning,
2020). Government has also taken measures to increase safe tourism after witnessing an increase
in tourism in post lock down period an increase in number of international and domestic flights
have added to the growth in this sector. The government has also increased fiscal support,
announcing revamped version of the furlough scheme of the companies which had to be shut
down during lock down. UK government is also in talks with European Union to have a trade
deal which could minimize economic damage in the transition period this year end. The
country's economy is slated to grow at 6% in 2021.
Economics and Political Issues
The political issues which have an effect on the economy are US elections, Brexit from EU,
conclusion of Free Trade Agreement etc. The outcome of US elections always have an economic
impact on the UK's economy as both are major trade partners. The foreign policy of US can
change with election of new president as Joe Biden. Although since Britain has been a long time
friend of US, it is most likely that US policies will still be favoring Britain as in the previous
regimes.
Speaking of Brexit, tariffs increase by other members of EU can affect economy
adversely. However, post covid UK government has been in talks with EU to make a trade deal
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to make transition period of Brexit smooth. They have reached around a Fair Trade Agreement.
Which will help both sides (Gudgin and et.al., 2018).
CONCLUSION
It can be concluded that UK economy is a vast one comprising of different components. The
covid impact has cast a dark shadow on its economy. Although after post lock down country has
registered growth and with its trade deal with EU passing through it is on its road to recovery
and this will have the employment graph too rise on positive note.
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REFERENCES
Books and Journals
Brown, R., Rocha, A. and Cowling, M., 2020. <? covid19?> Financing entrepreneurship in
times of crisis: Exploring the impact of COVID-19 on the market for entrepreneurial
finance in the United Kingdom. International Small Business Journal.38(5). pp.380-390.
Gudgin, G. and et.al., 2018. The macro-economic impact of Brexit: using the CBR macro-
economic model of the UK economy (UKMOD). Journal of Self-Governance and
Management Economics. 6(2).pp.7-49.
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-population
health. 12. p.100651.
Manzanedo, R.D. and Manning, P., 2020. COVID-19: Lessons for the climate change
emergency. Science of the Total Environment. 742.p.140563.
Minford, P., 2019. The effects of Brexit on the UK economy. The World Economy. 42(1).pp.57-
67.
Nicola, M. and et.al., 2020. The socio-economic implications of the coronavirus pandemic
(COVID-19): A review. International journal of surgery (London, England).78.p.185.
Ozili, P.K. and Arun, T., 2020. Spillover of COVID-19: impact on the Global
Economy. Available at SSRN 3562570.
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