Impact of COVID-19, Government Measures & Brexit on the UK Economy

This report examines the profound impact of COVID-19 on the UK economy, exacerbated by the existing challenges of Brexit. It details the economic consequences, including business closures, increased unemployment, and rising national debt. The report analyzes the UK government's major economic responses, such as bounce-back loans, the furlough scheme, and the Eat Out to Help Out scheme, assessing their implications. Furthermore, it explores the Bank of England's interventions, including interest rate reductions. Finally, the report discusses the likely impacts of Brexit on the UK economy, providing a comprehensive overview of the economic landscape. Desklib offers this document as a resource for students, alongside a wealth of other solved assignments and study materials.

Contemporary business
environment.

Executive Summary
The purpose of the report is to analyse the impact of COVID 19 in the economy of UK. It is
important for the government to provide necessary support to the businesses as well as households
of the country. An information about the schemes provided by the government for the support of
businesses will be provided. The role of Bank Of England in the current pandemic and economic
downfall is given below. The implications of Brexit will be provided along with its impact on the
economy.

Table of Contents
1. Introduction ......................................................................................................................................4
2. Discussion and Analysis.....................................................................................................................4
2.1. Impact of COVID-19 on the UK’s Economy ..........................................................................4
2.2. Major Economic Responses of the UK’s Government and their Implications ......................6
2.3. Major Responses of the Bank of England and Their Implications to the UK’s Economy.......8
2.4. What are the likely impacts of Brexit on the UK’s economy?...............................................9
3. Conclusion .................................................................................................................................11
4. Recommendations......................................................................................................................11
5. References..................................................................................................................................12

1. Introduction
COVID 19 is severely affecting the countries and their economies. It is important for the
government to take major steps in order to provide support to their economy. It is important for the
organisation to make sure that they are working efficiently so that the operations and workings of
the company does not get affected. Due to the pandemic, the government forced businesses to shut
their trade activities for some time so that their is no further spreading of the virus (Brennan and et.
al., 2018). These restrictions does not only affected the businesses of the organisation but has also
affected the supply chain management of the country. This report covers the impact of COVID 19 on
the economy of UK as well as the impact of Brexit on the economy. The report also covers the
responses of government towards economic impact of the pandemic and the responses of Bank Of
England in order to provide economic stability. Lastly, the report will cover the impact of Brexit on
the economy of UK.
2. Discussion and Analysis
2.1. Impact of COVID-19 on the UK’s Economy
Due to the lock down in the country several businesses have to suffer major losses and at
the end, they were forced to shut down their business. The pandemic has severely affected the
businesses and economy of UK. The country already was trying to cope with the implications of
Brexit and then sudden lock down has created a negative impact on the workings of the economy.
The government has also suffered major losses as their was a significant decrease in the income of
the government due to the less taxes liability (Six in 10 UK firms have no more than three months of
cash left, 2020). As the news of lock down came out, people were very anxious and tried to store as
much basic necessity products as possible which make most of the products go out of stock and as
the supply chain were also disturbed, the situation became worst as the people were not getting
their basic necessity products. The constant flow of products and services is important for the
economy as it will make sure that there is constant flow of money in the economy.
 Unemployment: According to the reports, around 7.6 million jobs in the economy were at
high risk as the government put lock down in the economy. The companies were not having
enough capital or income to provide salary to their workers and people with low income and
low resources are most vulnerable. Nearly 50% of the of all the jobs that are at risk are of
low income which are earning less than £10 per hour (COVID-19 in the United Kingdom:
Assessing jobs at risk and the impact on people and places, 2021). The government has also
initiated schemes which can help the businesses in providing salary to their workers which

will actually be sponsored by the government. Unemployment decrease the disposable
income of people and will also decrease the standard of living of people which will have an
adverse effect on the economy of the country. Since the businesses are facing difficult
situations ion the economy it is important for the government to make sure that they are
supporting their businesses efficiently.
 Collapsing of businesses: According to the Reports, out of 10 firms of UK, six of them does
not have enough cash to support their business for more than 3 months. Majorly because of
the pandemic and Brixit, the companies are suffering from the implications
(Hannan and et. al., 2019). As the government haws imposed lock down just after the
implementation of Brixit, the companies are having shocks continuously which are disturbing
the workings and operations of the organisation. The reserves of the companies are
declining continuously and the instability of the economy is also affecting the businesses
severely.
 Increasing national debt among others: Government of UK are continuously
spending large amount of funds on the to protect the economy of the country and to fight
with the virus. as it is a contingency which was so sudden and unexpected that people and
government in between April 2020 to 2021 had borrowed £299bn so that the government
can support businesses and households (How much is Covid costing the UK and how will we
pay? 2021). It is the highest borrowed amount by the government since 1946. it has been
expected that the government is going to borrow additional amount of £200bn in between
the year of April 2021 to 2022. Around £100bn of borrowed money was spend by the
government to support jobs and in schemes which are related to the salary and employment
and in the activities in which the government intervenes and paid wages of workers.
2.2. Major Economic Responses of the UK’s Government and their
Implications
Bounce bank loans: the scheme was launched by the government of UK in order to provide
help and support to smaller businesses who are severely impacted by the pandemic. The aim of the
scheme is to provide capital for working to the businesses so that the operation will not get
interrupted. The scheme will allow businesses to borrow in between £2,000 up to 25% of a business
turnover but not more than £50000. the scheme was launched on 4th May 2020 and remain open till
4th November 2020(Bounce Back Loan scheme, 2021). The guarantee of the loan amount will be
taken by the government but the liability of payment of both capital and interest will remain with
the borrower. The government of UK will help the borrowers in paying first 12 months of interest

and after 12 months the borrowers will themselves pay the remaining interest amount. The period
of repayment for borrowers will be six years however if the borrower is willing to pay their loan
amount early then they can do so without any extra repayment fees(Shariff., 2018). Their will be no
personal guarantee by the borrower and if they fails to pay the loan amount, no recovery action will
be taken by the banks on the principle private vehicle or principle private vehicle of the borrower.
Furlough Scheme: According to the scheme the government of UK will pay wages of workers
who are not currently working due to the implications of pandemic. The government will provide a
monthly limit of £2500 to those employees who are working for employers who no longer can pay
the wages of the employees. At the beginning of the scheme, government paid around 80% of the
wages of employees whereas in August and September, the government reduced the margin and
now the government will pay 60% of the wages and remaining 20% will be paid by the employer
(Covid: What will happen when furlough ends?, 2021). According to the reports, around 1.6 million
people were taking benefits of furlough till July. It is the lowest number of beneficiaries since the
start of the pandemic which is a good news for the government. In May 2020, nearly 9 million
people were taking benefit of the scheme as it was the initial stage of the pandemic. There is a
strong possibility that the rate of unemployment will increase with the increase in the end of the
scheme as the employers who are in losses will not be able to pay the wages and salaries of the
employees that are working for them. Some of the businesses specially related to travel and leisure
industry may have to cut their cost in order to survive as these sectors have been affected the most
by the pandemic. According to reports, around £66bn was spend by the government from the
period of March 2020 till September 2021. it is huge amount as it is one fifth of the amount that is
spend by the government on the COVID relief fund.
Eat Out Help Out Scheme: The scheme was to support the food businesses who are
reopening after COVID 19. according to the scheme the government is paying 50% of the cost of
food that the participating businesses are providing to their customers (Bueno, Rodríguez-Baltanás
and Gallego., 2018). The government will provide 50% of the food and non alcoholic beverages cost
that the business is providing in order to increase the sales of the company and to enhance the
profitability of the business in the current times of pandemic. The scheme is applied from Monday
till Wednesday all day long. Under the scheme, £849 million were claimed by the businesses which
includes 78116 outlet. It is important for the government to make sure that they are providing
amount to the businesses only after proper analysis as it will make sue that no business is taking
unfair advantage of the scheme (Spencer, D., 2021). The maximum limit of the amount is decided to
be £10 per head and not more than that which is a suitable amount. At the rime of announcement
of the scheme the estimated amount that the government decided or forecasted was £500 but the

limit is exceeded and till now the government had paid £840 million. The forecasted limit has
exceeded which means the government have to find new ways in which it can pay the claimed
amount. The benefit is the scheme has reached to the businesses as after the scheme the demand of
customers has boosted significantly.
Self-Employment Income Support Scheme: The aim of the scheme is to provide support to
self employed people in the times of pandemic. It is important for the government to support
businesses in order to provide stability to the economy and to make surer that the businesses have
adequate resources so that the workings of the company does not suffer (Anning-Dorson and
Nyamekye., 2020). The scheme will provide eligible businesses a grant of 80% of the average
monthly trading profit over the last three qualifying years. In order to be eligible for the grant, it is
important for the individual to be either self employed or an active member of partnership firm. The
individual must have filled tax return for the year 18-19. There are other factors as well such as the
individual must intend to trade continue in the tax year 20-21, the firm must have suffered losses
due to the pandemic, the self employed trading profit must be less than £50,000 and lastly more
than half of the income of individual is from self employment. Loss making businesses or recently
self employed businesses will not be eligible for the grant. The individual will be able to have a
taxable grant of 80% of the average profits of the last three years (Mahmmod and Al Obaidi., 2018).
The maximum sum the government will pay to beneficiary will be £2,500 per month. It is
important for the government to make sure that the amount is reaching to the correct person or
business and if not then proper penalty should be provided to the unfair advantage taker.
2.3. Major Responses of the Bank of England and Their
Implications to the UK’s Economy
Reduced interest rate: Bank of England is the sole authority responsible to bring stability in the
economy of the country. Bank of England often reduces the interest rate because of the following
benefits:
 They reduce the interest they give on savings account which eventually makes the
customers less interested in keeping the money in the bank. This encourages them to lend in
the market at a higher rate which helps in smooth flow of money , it helps the businesses to
expand their production (Crane and et. al., 2019). An expanded business requires manpower
so it basically reduces the unemployment rate and helps in improving UK's economy.

 A lower rate of interest also tends to increase the price of assets such as real estate, bonds
and shares. Boom in the prices of shares of top companies in UK is one of the indicators of
great economy.
 Change in interest rate also effects the exchange rate , by this UK becomes more competitive
in the international market (Costinela and et. al., 2020). A falling sterling implies that more
countries will import goods from UK which will increase the number of exports and High
exports helps economy to recover.
Summing up , lowering the interest rate increases the flow of money in the market which helps the
businesses to recover. All of these factors directly or indirectly helps the economy of UK to sustain
and make progress.
Sustenance of Government Bonds: A government bond is an instrument issued by the Bank of
England to the general public, these bonds are also called gilts in UK. These bonds are a secure
investment for the people of UK and it is a debt instrument for the government (Chen., 2019). These
are issued to support the spending of the government , these are also beneficial for the people as
the government gives a certain percentage of annual coupon or interest till the maturity and then
gives the principle amount back to the holder. While the economy is facing crisis, the BoE issues
more bonds so that they can use the capital raised to stabilise the economy. Government
encourages the people and makes the acquisition of bond easy so that everyone interested can buy
the bonds. People with a reserved mind set tend to buy government bonds as they are more reliable
and trustworthy and the level of risk associated with it is almost null. By this the Bank of England
puts more money in the market flow and the large companies who needs money for their operations
take it from the government on minimum interests (França and et. al., 2020). Situations like covid-19
requires the healthcare facilities of the country to be top notch and to improve and expand the
healthcare resources, government uses the funds raised from the government bonds. Improving the
healthcare facilities and the operations of large businesses operating in the country directly effects
the economy in a positive way.
2.4. What are the likely impacts of Brexit on the UK’s economy?
 Immediate Impact: The UK's exit from the European union get completed on 1st January
2021. The population of UK have voted 5 years back in order to approve or disprove the

proposal of exit from European union. The result was in the favour of British Exit from
European Union. The economy has registered changes and slow down in the economy of UK
as their were lots of uncertainty at that point of time. Many large businesses shifted their
headquarters from UK in order to make sure that they avail the benefits provided by
European Unions (Liao, Chen and Hu., 2018). The immediate impact on the government of
UK was the rise in inflation and increase in the import duty of products. The impact of Brexit
can clearly be seen in the growth of the economy. In the year 2015, the growth rate of the
country was 2.5% whereas in the year 2019 after the news of Brexit, the growth rate of the
economy was 1.0%. it is a significant decline in the growth rate of the economy as the British
pound also fall from $1.48 to $1.36 in just one day after the news of Brexit came out. The
major impact of Brexit was on Germany as it is expected that the country is going to suffer
from labour shortage at the end of 2030. In order to avoid the interruption due to shortage
of labour, it is important for the company to have at least 3 million workers. The workers of
UK will not get this opportunity because of the implications of Brixit. The UK is also suffering
as workers from EU are going back to their country which may create a loss of skilled labour
for the country (Eldor., 2020). The only way in which UK can have benefit of Brexit is to make
negotiations effectively as it will help them in having a strong position.
 Future Impact: In the near future the economy of UK will have an advantage of free trade
although the situation might seen uncertain in present time. The trade barriers will also be
reduced which will provide freedom of trade to the companies of UK (Serra-Cantallops and
et. al., 2018). The company will not\w be able to have higher sales and profits as they will
have benefit in export and will be able to have better business opportunities which is
beneficial for the business. The focus of the companies of UK must be on the products and
services which can provide them competitive advantage in the market.

3. Conclusion
From the above report, it is concluded that the current ongoing pandemic has affected the
lives and businesses of people severely. It is important for the organisation to make sure that they
are working effectively and also it is important for the government to provide proper support to the
businesses so that they can save the economy from collapsing. The Bank Of England has also played
a major role in providing stability and support to the economy as well as businesses. The condition
of economy of UK is very bad as it is a combined effect of pandemic as well as Brexit policy.
Necessary steps has been taken by the government in order to make sure that the operations of the
businesses specially small and medium enterprises are running efficiently. The increase in the overall
unemployment rate, transfer of headquarters of large organisations, etc has caused a severe impact
on the economy of the country and it is needed to be supported by the government.
4. Recommendations
It is recommended to the government to make sure that proper benefits are reaching to
proper people. If the benefits are not reaching to the genuine people than it is a complete waste of
funds of government (Moisander and et. al., 2018). The government must provide benefits to the
businesses and households who are suffering due to the pandemic as this support will help the
government in stabilizing the economy and will make sure the disposable income of consumers are
increasing. The government must make sure that they are providing proper information to the
businesses as there is a lot of uncertainty in the market regarding Brexit and its policies.

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