UK Economic Analysis: Lockdown, Brexit, and Government Interventions

This report examines the contemporary business environment in the UK, focusing on the adverse economic effects of the COVID-19 pandemic and Brexit. It analyzes the impact of lockdowns on the UK's circular flow of income, highlighting the significant fall in GDP and employment rates, and increas...Read More

CONTEMPORARY
BUSINESS ENVIRONMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Explaining the main impact of lock-down on UK's economy.....................................................3
Major economic response by the government of UK .................................................................4
Major responses of BOE..............................................................................................................7
Impact of Brexit on UK's economy.............................................................................................8
Recommendations............................................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Mainly contemporary refers to the same period of time. It is a type of business
environment that has a very huge competitive market that have nature to change rapidly. The
proprietor of such businesses must have the proper knowledge and skills in order to understand
the developments and the requirements that are needed by the business to grab the fast response
(Branley-Bell and et.al., 2020). In the report the adverse effect of the covid-19 on the UK
ecomony will be discussed along with the major economic responses. It also shows the Brexit
impact on the economy of the United Kingdom and the steps taken by the BOE.
Explaining the main impact of lock-down on UK's economy
Circular Flow of economy has impacted the economy of UK during lock down in following
ways
Impact of lock down on UK's economy using the circular flow of income are as follows.
Circular Flow of Income model demonstrates that how money moves through the society. Money
flow from producers to workers as wages and flows back to producer as payment for products. It
is the model of the economy in which major exchanges are represented as flow of goods and
services(Dropkin,2020).
The economy was affected by this pandemic in many ways. Many businesses are shut
downed due to the restrictions which are imposed by government during lock down and also
there was severe impact of it on mobility. We even cannot imagine the magnitude of the
recession which was caused by this pandemic in modern times. The first lock down which was
imposed by government of UK in that the GDP of UK was fall downed by 25% than what it was
earlier recorded before 2 months. Due to this pandemic, the economy's different sector has
affected in a different extent. Social contact sectors, which include hospitality and entertainment
was badly hit(Kumari,and et.al., 2020). Some sectors such as financial services was much far
better. Forecasting done by International Monetary Fund(IMF)forecasted a fall this year in the
economy of UK and this time the decline which was experienced in the year 2008 to 2009 was
quite larger.
Government and banks has introduced some policies to mitigate at least some negative
impact of this pandemic in the country. Several policies was also announced by government to

support businesses and workers. With effect from the framework of national accounts,the
anticipated during economic impact of coronavirus on UK, we are explaining here that how they
are going to affect the circular flow of income estimates of GDP(Altman, 2020).
The government budget deficit reached a peacetime record. The government has also
taken some measures to support small households and businesses. As a stock of its past
borrowing ,government debt has inevitably increased. Going into pandemic government debt
was 84%,which is now close to 100%(Jessop, 2020). There was a drastic change in the spendings
of the households. The sales of the retailing sector was declined by 8.7%which was the largest
month to month decrease(Zhou, and et.al.,2020). Though some areas such as grocery stores, non
stock retailers had shown an increase in demand as lock down measure began while other sectors
such as furniture, appliance stores ,hobby stores showed a drastic decline.
The lock down which was caused in UK undertaken post COVID has put 24% of
workforce at risk.(Duffy,2020). The people who belong to the poor category had suffered a lot.
According to the Office of National Statistics ,23%of businesses had temporarily closed or
paused affected by this lock down. Around 20% of the UK working age population had been
furlough because of this lock down(Jallow, and et.al., 2020) During lock down, the economic
activity gone down roughly to 30%. Due to lock down in the UK's economy the concern
regarding gender inequality was also increased.
Major economic response by the government of UK
Major economic response by the Government of UK and its impact on UK circular flow of
income are as follows :
Facilities by government
There was a lot of measures which was implemented by the government, out of which
some of the them are restrictions which are related with travelling, shutting downs of modes
which are related with entertainment and the shops which do not fall under the category of no
essential shops. The government has also sketched a plan for easing the lock down. For business
to be facilitate across credit, the government has launched three new loan schemes. The
government during this situation has also helped those people who are not in condition that they
can do the work and also helped those members also who are the part of their household.

Low income people who need to self isolate and are unable to work ,as well as member
of their household are also receiving some amount of help from the government.
Schemes by government
The businesses that want that they should remain open,for them Job Support Scheme was
changed,with working hours to be reduced by 20%. For non-worked hours,government has
helped by paying 62%and 5% to the employers. Due to the restrictions of lock down, the
businesses which remained closed, the government will pay salaries to two-thirds of its
employees and the employers will cover social restrictions(Zhou, and et.al., 2020).
Grants by Government
The grant which was provided for self employment its value was increased from 20 to 40
percent of profits. The businesses which are associated with hospitality, accommodation and
leisure are also receiving grants from the government. A new package including various
measures was also launched by governments which includes the Job Support Scheme
postponement,cancelling the Bonus retention scheme related with the job, CJRS to be extended
with the ratio back with the replacement at 80% and the earnings of the grants of SEISS was also
increased by 80%. To cut the rates in the economy,with lending to the economy with additional
incentives, the government has reinforced the new funding term scheme. With only deposit of
just 5% on loans, the new mortgage scheme for borrowers was also announced by the
government. The dollar liquidity which was given at 84- day maturity was decided to be
discontinued by the Central Bank, showing improvements in funding conditions of US Dollar.
However the weekly operations, within 7 days maturity was continue to hold. A supervisory
expectation was set out by Prudential Regulatory Authority (PRA)that banks which are large will
suspend their dividends and buybacks and should also cancel the dividends which are
outstanding. Bonuses in the form of cash also should not be paid to their senior staffs. The PRA,
with its intention towards standard framework for distribution of banks,reflects some reduction
in uncertainty related with COVID and the ability of banks to withstand or cope with the losses.
Fall in GDP
A package of measures to support the customers affected by the coronavirus, was introduced by
financial conduct authority,by offering the freeze payment on loan and up to three months on

credit cards. The largest economic hit was there when GDP fall by 19.5% reflecting a sharp
change. Overall the economy was changed by 9.8%. In the long run, it also has a weigh on the
activity which are implementing the changes in the post -Brexit trade regime. Even after the
social distancing has lowered down,allocation of labour has takes place gradually and also period
of corporate balance sheet has expected to weigh on investment. Due to effect of Covid, feeling
of unity and trust among UK government has declined. Trust and feeling of being united have
was higher and steadier. The ability to undermine public behaviour mobilisation has widened
social and health benefits. The importance of Local communities was increased during pandemic
than what it was before. Local trust and local hyper charitable trust and voluntarily organisations
has responded to COVID -19 in crucial way, but there are the differences based on the structure
of the communities and strengths of the communities. The gap between the spatial and
geographical inequalities has widened. Dimensions that have shaped impact of the crisis includes
poverty and deprivation and planning related with the response. Due to structural inequalities
among different sectors of the economy,government response to this situation has impacted
different people in different ways. Dimensions of gender,caste and race has different effects on
these.
Fall in economic and employment rate
Employment and household income level showed a decline and will likely be care a
problem in the future. Due to increased dependency on social security,current system will deal
effectively with this.
People who depends on the social security support,this may not be important for them,
but in order to keep pace with demand, adjustments for the social security system may be
important for them. The effects of education which has been lost its levels at all access,would be
impossible to recover in the forthcoming years. Due to the risks around the unemployment,there
are more pressures on government regarding the level of debt and falling in the revenues of
tax,falling of businesses and important shifts in the structure of the economy. It is also important
that for the generation of revenue and impact and weighing up expenditures against non-
economic impact considering diversity mechanisms to meet societal goals.

Major responses of BOE
After the covid-19 pandemic situation the economy of the UK suffers a lot even the
whole world suffer because of lock down and also it gave impact on the Bank of England It takes
steps and implies some policies in order to serve the UK's circular flow of income. Following are
the implications of the Bank of England-
Reduction in the interest rate: The Bank of England takes a major step in order to facilitate the
cash flow of the UK' economy by reducing the interest rate to 0.1% (Our response to
coronavirus . This decision was taken at the meeting of Monetary Policy Committee which was
held on 19, March, 2020. Bank rate refers to the official interest rate of UK and it is the most
important or the base rate of UK regarding the all types of financial products. It facilitates the
businesses as well as the households in terms of cheaper loans or the less interest rate on the
loans taken by them. This will reduced the costs that are faced by UK businesses as covid-19
creates many issues and challenges for the organizations(McKenna-Plumley,and et.al.,2021)
Helped banks to cut interest rate on their lending: Bank of England provides fund to the other
banks to increase the lending after the covid-19 pandemic. As lock down gave a negative as well
as huge impact on the small and medium sized companies and these businesses faces more
difficulties at this time in terms of their survival. So, in order to overcome this problem or the
situation the Bank of England support these companies by providing funds to the other banks and
also cut the interest rates on lending. This will help the small and medium scale enterprises and
can be able to take the loans from the banks as the interest rate is low(Altig, and et.al., 2020).
Helped businesses: It also helped the organizations in order to pay their staff and the suppliers
as the Bank of England worked with the government of UK and tries to give full support to the
large enterprises. It support them by offering the cash or the funds foe their corporate debts. This
assist the organizations to pay the salary or the wages to its employees or the staff members and
also facilitates their suppliers. Bank of England also give support to the small sized companies
by providing the finance to the banks and building societies.
Expand landing: Bank of England pays an important role in the expansion of the lending. It
reduced the amount of capital or the financial resources as per the requirement of the banks as
well as the building societies. This helped them to set the capital or the funds against their
lending to the households and the businesses of UK. It allows the banks of UK to do not pay any

type of dividend to the shareholders in the year 2020. On the other hand it also guides the banks
about the payment of the cash bonuses.
Impact of Brexit on UK's economy
Every industry is affected by Brexit due to the potential economic impact. Brexit gave
negative impact on the economy of the United Kingdom as the taxes are imposed on the import
and export services with the European Union. This badly affects the whole economy of the
country. As UK imports most of the food products from EU so it faces many problems due to the
Brexit. After the Brexit EU takes the decision to impose the increased tax rate on the import as
well as the export services of UK which will gave the adverse effect on the businesses of the UK
as it has to face many problems and challenges regarding the availability of the raw material,
goods, services and the adequate resources.
It also affect the GDP of the UK government as the country have to suffer the high GDP
losses and the reduction of the per- capita income of the UK(Anand, 2020). This will result in
the situation of the inflation that creates issues for the enterprise as well as the citizens of the
United Kingdom and also reduces the economies of the UK government. Reduction in the GDP
also affect the sales as well as the production of the goods and services as the rate of the products
increases which will affect the market of the UK.
Brexit also affect the employment and also harm the trade as earlier there is a free trade
between the UK and EU countries but when the UK reverts to the rules and regulations of the
WTO it gave adverse effect on the trade of UK. EU impose the trade reforms and tariffs and
stops the free flow of the trade with the countries of UK. This results in the situation of the
unemployment because of the shut down of the many small scale industries. After Brexit there is
no supply of the money or income so the companies starts eliminating the employees or the
workers which results in the situation of the unemployment and the enterprise also pays the less
wages to the workers. This also affect the living standards of the people or the citizens of UK
and increases the poverty(Jessop,2020) .
In addition to the above discussion, the UK faces or experienced the recession due to the
reduction of the investment and also the economic growth of the country also decreases for at
least five years. It also affect the financial institutions of the UK like banks, insurance
companies, etc. They also increase the interest rate on the loans and on the lending of the
companies or the industries that will badly affect the overall business activities and the functions

of many large industries. It creates many barriers and hurdles in the growth or the success of the
firms. Due to the Brexit the smooth and easy flow of the income and the money transactions
become difficult for the organizations because of availability of the funds and resources.
Recommendations
The economy of the UK government is badly affected by the covid- 19 or because of the
lock down situation so in order to overcome this worse impact it should be recommended that the
UK government must make new plans and strategies to support the businesses of UK. The UK
government should focuses on the circulation of the flow of income by providing the required
funds to the financial institutions. It should also implement the policies regarding the safety or
the protection of the workers and must facilitates them with the minimum wages to avoid the
situation of the unemployment.
On the other hand, it is also be recommended that the UK government should gave
emphasis and put efforts to make the strong supply chain networks in order to overcome the
impact of the Brexit. The government should also tries to maintain the healthy relations with the
other countries to increase the flow of income smoothly and easily and must put efforts to
improve the relations with the EU countries This will help in the growth and the development of
the economy and also increases the standard of living of the people.
CONCLUSION
Form the above report, it can be concluded that the coronavirus had a great impact on the
economy of the UK as well as on the whole world. The impact of lock down on the circular flow
of income was very bad as after the pandemic situation many small scale companies are shut
down due to the unavailability of the funds and resources. It also affect the overall income or the
revenue generation of the businesses of UK. However, it can also be concluded that the Bank of
England reduces the interest rate in order to support the other banks and building societies by
providing the adequate funds. The major impact of Brexit is increase in the tax rate on import
and export services that gave a huge impact on the economy of the UK and on the relations of
the United Kingdom and the European Union.

REFERENCES
Books and journals.
Altig, D. and et.al., 2020 . Economic uncertainty before and during the COVID-19
pandemic. Journal of Public Economics, 191. p.104274.
Altman, M. 2020. Smart thinking, lockdown and Covid-19: Implications for public
policy. Journal of Behavioral Economics for Policy. 4(COVID-19 Special Issue). pp.23-33.
Anand, P. 2020. Economic policies for Covid-19. IZA-Institute of Labor Economics.
Branley-Bell, D. and et.al., 2020. Exploring the impact of the COVID-19 pandemic and UK
lockdown on individuals with experience of eating disorders. Journal of Eating
Disorders. 8(1).pp.1-12.
Donaldson, G.C. And et .al., 2021. Impact of the UK lockdown on people at risk of COPD. ERJ
Open Research. 7(4).
Dropkin, G,.2020. COVID-19 UK lockdown forecasts and R0. Frontiers in public health, 8
p.256.
Duffy, B. 2020. Getting used to life under lockdown? Coronavirus in the UK. Kings College
London and Ipsos. pp.2020-05.
Jallow, H. and et.al., 2020. The impact of COVID-19 outbreak on United Kingdom infrastructure
sector. Smart and Sustainable Built Environment.
Jessop, J. 2020. The UK lockdown and the economic value of human life. Economic
Affairs, 40(2). p.138.
Kumari, P. and et.al., 2020. Impact of lockdown on air quality over major cities across the globe
during COVID-19 pandemic. Urban Climate, 34. p.100719.
McKenna-Plumley, P.E.,and et.al.,2021. Connection, constraint, and coping: A qualitative study
of experiences of loneliness during the COVID-19 lockdown in the UK. PloS one. 16(10),
p.e0258344.
Zhou, M. and et.al., 2020. Gender inequalities: Changes in income, time use and well-being
before and during the UK COVID-19 lockdown.
Online references

Our response to coronavirus (Covid), 2021. [Online]. Available through
<https://www.bankofengland.co.uk/coronavirus>