Impact of COVID-19 on UK Economy: Government and Bank Interventions

This report examines the profound impact of the COVID-19 pandemic on the United Kingdom's economy, highlighting the significant decline in GDP and disruptions across various sectors. It delves into the economic responses implemented by the UK government, including the furlough scheme, job retention scheme, the 'Eat Out to Help Out' initiative, and the Bounce Back Loan Scheme, assessing their effectiveness and consequences. Furthermore, the report analyzes the Bank of England's key measures, such as reduced interest rates and the sustenance of governance bonds, evaluating their influence on the UK's macro-economy, inflation, and exchange rates. The analysis provides a comprehensive overview of the challenges faced by the UK economy and the strategic interventions designed to mitigate the crisis, offering insights into both the successes and limitations of these policies in supporting businesses and individuals during the pandemic.

Emerging Information Systems

CONTENTS
1. INTRODUCTION..............................................................................................................1
2. DISCUSSION & ANALYSIS............................................................................................1
2.1 Impact of covid19 on the economy of UK..................................................................1
2.2 Main economic responses of the Government of UK and their consequences...........2
2.3 Main responses of the Bank of England and their consequences to the economy of
UK 5
3. CONCLUSION...................................................................................................................6
4. REFERENCES...................................................................................................................7

TABLE OF FIGURES
Figure 1: Contribution of GDP growth by different sectors of UK...........................................1
Figure 2: Number of jobs per day furloughed in UK.................................................................3

1. INTRODUCTION
In March 2020, The World Health Organisation has acknowledged a worldwide
pandemic, sending a shockwave of terror, ambiguity and misperception across the globe. It
has been one of the deadliest virus encountered in the human kind and has impacted many
lives, economies and nations (Eichenbaum, 2020). Considering this, the present research
report also going to deal with analysing the influence of COVID19 on the economy of United
Kingdom and will throw light on different economic policies being adopted by the
government Central Bank as a response to the threat of pandemic on the economy of UK.
2. DISCUSSION & ANALYSIS
2.1 Impact of covid19 on the economy of UK
United Kingdom has been hit hard by the economic impact of Covid-19 pandemic in
comparison with the other global nations. The current figures reflects that the economy of the
nation is still beneath 9.7 percent from the level before pandemic. The decline in the
economy is quite more than witnessed in European Union and USA. From the past six
months, UK was among the second worst nation after Spain out of all OECD nations
(Coronavirus and the impact on output in the UK economy: December 2020, 2020). These
figures reveals the manner social distancing, quarantines and lockdowns has restricted
mobility, how rise in the infection has decreased the supply of labour and the way closure of
the workplaces has impacted production levels and supply chains. In addition to this, these
figures also highlights the manner layoffs, uncertainty, declined income and terror of
contamination weigh on the Gross domestic product of the nation as discussed in the below
figure.
Figure 1: Contribution of GDP growth by different sectors of UK
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(The economic effects of coronavirus in the UK, 2020).
All these influences the circular flow of income which detains three crucial methods
of computing gross domestic product i.e. production, income and expenditure. All these three
measures are corresponding to each other. Throwing light in relation with production, lower
levels has been witnessed because of the decreased demand for products and services in UK.
This can be seen from the falling sales figures and in turnover of the business. The level of
employment has also been decreased and near about 7.5 million jobs are at risk now.
Additionally, near about fifty percent of the jobs are at risks in occupation earning below £10
per hour (Coronavirus and the effects on UK GDP, 2021). Each and every industry is inter-
related in the global economy and thus, there has been disruption in the supply chain in some
industries such as construction, hospitality and production. Nevertheless, some industries
have also experienced increased in the production due to Covid19 such as ecommerce,
pharmaceuticals and food retail industry. Moreover, covid19 has adversely impacted the
demand and supply of products and services in the economy of UK and this resulted in the
reduced utilization of capital as well as labour inputs in the manufacturing processes.
Compensation along with the hours of work of the employees have also been impacted due to
this pandemic. Besides, there has been lower down of the non-essential spending due to
closure of shops and restrictions on movement (Altig, 2020). There has also been changes in
the profiling as well as composition of consumer spending.
2.2 Main economic responses of the Government of UK and their consequences
Different economic responses were being taken by the government of UK and Central
Bank in order to limit down the human resource as well as financial impact of the covid19
pandemic (Nicola, 2020). Explanation of some of the responses and their implications of the
UK’s economy is being elaborated in the subsequent paragraph:
Furlough Scheme
Each and every industry have ground to an unexpected break with the going of nation
after nation into coronavirus lockdown. Industries such as hospitality, travel and retail have
been hit hard due to this. Different businesses and companies have responded towards this
crisis through placing their employees or furlough which signifies instead of laying them off
they have been in the company via unpaid leaves. In both the cases, employees were
impacted by an unexpected financial loss, the only alteration is that furloughed workers can
again start working with the company at times when the economy recovers. In UK, many
businesses have offered furlough scheme in order to stop the wave of job losses in the
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country. Around eighty percent of the companies have received grants from the UK
government for the workers which are on payroll and are not working due to pandemic
(Kimera, 2020). In addition to this, this scheme has protected the income of thousands of
individual all throughout the nation. Nevertheless, this scheme is ending soon and the now,
all the companies are required to shoulder full accountability of the furlough employees.
Throughout this scheme around 11.6 million of jobs were supported and with the end of this
scheme, millions of Britishers will going to face uncertain future and risk
Figure 2: Number of jobs per day furloughed in UK
(Plummer and Palumbo, 2021).
However, record and data shows that there are high number of vacancies and shortage
of labour in the UK market and thus, it is the right thing to end the furlough scheme. This
scheme will have a slight impact on the unemployment level and will dent the shuttering of
the economic recover of UK from covid19.
Job Retention Scheme
This scheme has been introduced by the government of UK in order to support those
businesses or employers who are not in a position to maintain their present employees due to
the operations being impacted by the pandemic. Employees those who are not working
temporarily or have reduced part time hours can apply for this scheme. In addition to this, it
is one of the most integrated as well as inclusive labour market policy in order to augment the
amount of jobs being available to the people. It also helps people in preparing them for the
labour market through promising placements for unemployed individuals (Policy Responses
3

to the Coronavirus Pandemic - Statistics and Research, 2021). This scheme of the UK
government has played a crucial role in work strategy as it has linked a variety of tried as
well as tested employability support, encompassing coaching along with pre-employment,
permanent learning and work support. Further, this scheme has also been regarded as a key
for the economic recovery of United Kingdom.
The eat out to help out (EOTHO) scheme
The Chancellor of the Exchequer in July 2020 has proclaimed institution of the “Eat
Out to Help Out (EOHO)” scheme which was a sub-section of the policy response to the
covid19 pandemic. This scheme ran from 3rd August to 31st August 2020. This scheme has
allowed the partaking restaurants to provide around fifty percent of discount on food as well
as non-alcoholic beverages which were consumed by the people from Monday to
Wednesday. Per person limit under this scheme was £10 and the remaining fifty percent will
be paid by the government (Eat Out to Help Out scheme had a 'limited effect on the UK's
restaurants and cafes', 2021). Similar to this, the government has also announced decrement
in the value added taxes on a temporary basis for the companies falling in the category of
hospitality sector comprising restaurants. However, this scheme has limited influence on the
footfalls and recruitment and has impacted the economy of UK. Some economic gains from
this scheme might have occurred at the cost of more infection and spread of coronavirus.
Besides, this scheme has also impacted the flow of consumer price inflation for August 2020
in United Kingdom.
Bounce Back Loan scheme
Because of the financial disruption being caused by the covid19 pandemic, the
government of UK has developed a variety of measures in response to this disruption for
helping and supporting businesses in surviving the loss in the cash flows as well as revenues.
The Bounce Back Loan Scheme (BBLS) was being established by the government to help the
businesses. This scheme is a part of an extensive compendium of government support for the
companies of United Kingdom along with the workers. Furthermore, it has allowed
moneylenders to offer a 6 years term loan from 2000 British pounds to twenty five percent of
turnover of the business with no interest (Cumulative value of loans approved by the Bounce
Back Loan Scheme (BBLS) in the United Kingdom (UK) between May 2020 and May 2021,
2021). Besides, the highest loan that can be given to the business is currently fifty thousand
British pounds. During the period of 2020 to 2021, near about 1.56 millions of businesses
were permitted to get finance with the aggregate value of lending by the Bounce Back Loan
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Scheme of roughly 45 billion British pounds. Overall, it can be attributed that the Bounce
Back Loan Scheme of the UK government has offered a huge support to the companies
during covid19 pandemic, however to some degrees this scheme has also given additional
pressure onto the traders and industries at the time of their repayments. Other than this, as
under this scheme the funds are made available to the businesses quickly without involving
any credit as well as affordability checks, the prioritizing speed and its influence can be
witnessed in great level of projected scam (Baker, 2020). Nevertheless, there are number of
counter-fraud measures being undertaken by the government which provides a great chance
to this scheme to achieve success and supporting the industries to persist.
2.3 Main responses of the Bank of England and their consequences to the economy of UK
Reduced interest rates
The economy of UK is coming across an important recession. In this regard the Bank
of England has also announced lowering of the interest rates to the commercial banks from 1
percent to 0.5 percent after the VAT reduction has been unsuccessful in augmenting the
spending of the consumer. This was mainly done to make sure that the inflation target of two
percent will be attained from this. The monetary policy committee of the Bank of England is
accountable for maintaining steadiness in the financial system of UK. The bank performs one
of the most crucial and vital function that is alteration in the rate of interest for adjusting the
inflation level to predicted evolution in the consumer price index (Corinna, 2020). Recently,
the bank has reduced the interest rate pertaining to covid19 pandemic for economic recovery
of UK, however this has impacted the macro-economy of the nation. This is because of the
fact that it will augment the supply of money and will excite or inspire the collective demand.
This is popularly known as transmission mechanism and will influence the whole economic
cycle in varied manners. Other than this, this reduced interest rates will also impact the
exchange rates of UK because the demand for money will decrease which will ultimately
decrease the value of money (Yamin, 2020).
Sustenance of governance bonds
For the purpose of mitigating the short term impacts of restrictions being done due to
covid19 pandemic, the government of UK has adopted different financial measures. All the
actions being taken by the government and the central banks was mainly to provide help to
the people and businesses during lockdown. They Bank of England has also made sure that
the government bonds of UK will continuous to function in order to support the economies
during this tough time of economic slowdown (Coronavirus: Where does the government
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borrow billions from? 2021). With the purchase of the bonds by the people, the prices of
these government bond will tend to increase. This signifies that the bond yield will go down.
Thus, with the lower rate of interest and corporate bonds, the economy of UK will be boosted
up to certain level and will also ensure inflation rate at target. In addition to this, the
sustenance of government bond will have a huge influence on the inflation as well as
spending in the UK economy.
3. CONCLUSION
Thus, from the above analysis it can be concluded that due to covid19 pandemic, the
overall economy of UK has been impacted a lot, right from GDP, unemployment, national
income, expenditure, investment and production all have witnessed a down slope. In response
to these issues and economic crisis, government of UK and Central Bank has planned
different responses such as furlough scheme, job rotation, reduction and interest rates,
sustenance of government bond and so forth. All these efforts of the government have some
or in the other way impacted and boosted the economy to recover.
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4. REFERENCES
Books and journals
Altig, D., 2020. Economic uncertainty before and during the COVID-19 pandemic. Journal
of Public Economics, 191(104274), pp.1-3.
Baker, S.R., 2020. COVID-Induced Economic Uncertainty. (Working paper 26983).
Cambridge, MA: National Bureau of Economic Research.
Corinna, S., 2020. The effects of a cut in interest rates on the current UK economy as a whole
and on EaszJet plc. Munich, GRIN Verlag.
Eichenbaum, M.S., 2020. The Macroeconomics of Epidemics. (Working Paper 26882).
Cambridge, MA: National Bureau of Economic Research.
Kimera, F., 2020. Pandemic (COVID-19) Policy, Regional Cooperation and the Emerging
Global Production Network. Asian Economic Journal, 34(1) pp.3-28.
Nicola, M., 2020. The socio-economic implications of the coronavirus pandemic (COVID-
19): A review. International journal of Surgery, 78, pp.185-193.
Yamin, M., 2020. The Cost of Covid-19. International Journal of Information Technology,
13, pp.1-7.
Online references
Coronavirus and the effects on UK GDP. 2021. [Online]. Available through:
<https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/
coronavirusandtheeffectsonukgdp/2020-05-06#the-circular-flow-of-income>.
[Accessed on 6thJanuary 2022].
Coronavirus and the impact on output in the UK economy: December 2020. 2020. [Online].
Available through:
<https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/coronavirusandth
eimpactonoutputintheukeconomy/december2020#the-uk-economy-during-the-
coronavirus-covid-19-pandemic>. [Accessed on 7thJanuary 2022].
Coronavirus: Where does the government borrow billions from? 2021. [Online]. Available
through: <https://www.bbc.com/news/business-50504151>. [Accessed on 6thJanuary
2022].
Cumulative value of loans approved by the Bounce Back Loan Scheme (BBLS) in the United
Kingdom (UK) between May 2020 and May 2021. 2021. [Online]. Available through:
https://www.statista.com/statistics/1131803/value-of-facilities-approved-by-the-
bounce-back-loan-scheme-in-the-uk/>. [Accessed on 6thJanuary 2022].
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Eat Out to Help Out scheme had a 'limited effect on the UK's restaurants and cafes'. 2021.
[Online]. Available through:
<https://www.lse.ac.uk/News/Latest-news-from-LSE/2021/b-Feb-21/Eat-Out-to-Help-
Out-scheme-had-a-limited-effect-on-the-UK's-restaurants-and-cafes>. [Accessed on
6thJanuary 2022].
Plummer, R. and & Palumbo, D., 2021. Covid: What impact has the furlough scheme had?
[Online]. Available through: <https://www.bbc.com/news/business-54601117>.
[Accessed on 7thJanuary 2022].
Policy Responses to the Coronavirus Pandemic - Statistics and Research. 2021. [Online].
Available through: <https://ourworldindata.org/policy-responses-covid>. [Accessed on
7thJanuary 2022].
The economic effects of coronavirus in the UK. 2020. [Online]. Available through:
<https://www.resolutionfoundation.org/publications/the-economic-effects-of-
coronavirus-in-the-uk/>. [Accessed on 6thJanuary 2022].
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