COVID-19 AND THE UK ECONOMY
Almost on a daily basis, the world is having to react at speed to the dangers posed by the Covid-19 pandemic and what we are witnessing is unprecedented change that few of us would have predicted even a couple of weeks ago.
Politically, what we have seen governments from every continent doing everything they can to ensure that the massive disruption and potential financial downturn is minimised through direct intervention. As a result, this may signal a different approach over the next decade as to the future role of the public sector in supporting economies and businesses.
Whereas the current UK Government had already signalled its intention to borrow heavily to support the NHS and to develop new infrastructure projects, there may now be an expectation by businesses that there will be a more intervention approach by politicians, even those on the centre right whose natural fall-back position is to let market forces rule.
One of the few silver linings of this very dark cloud hanging over the UK and other countries is the way that it is has reawakened the spirit of community not only amongst individuals but also in the way that businesses are supporting each other despite difficult circumstances.
Whilst the leisure, hospitality and retail industry will be hardest hit, businesses in these sector are not going down without a fight and are adjusting their business models to ensure that they can survive the next few months.
Consumers are also doing their part by using new takeaway services offered by local restaurants, coffee shops or pubs, asking for deliveries from local shops, buying gift cards from businesses or rescheduling appointments rather than cancelling.
This social dimension may end up being the most important of all the factors as it may inspire people to have a very different view of their lives, especially with regard to work.
This has all been helped by technological advances that has enabled firms and organisations to switch large numbers of their workforces to safely working at home and away from possible infection.
A decade ago, this would not have been possible and thanks to a combination of high speed broadband, cloud computing and apps such as Zoom and Skype, cloud computing, carrying on the daily job has been made easier.
Therefore, if you are able to carry out your job efficiently and effectively from home, then why commute to an office every day?
Naturally, there will be sectors of the economy such as construction, manufacturing and frontline public services where such flexibility may not be possible but for the vast numbers of those working in the service sector in the UK, the prospect of working nine to five in the same building as hundreds of others may no longer be attractive.
Finally, in terms of the economy, the UK is fortunate that it is in a relatively healthy position, at least compared to 2008 and the last recession. Financial institutions are strong, employment is at a record high, the corporate sector is estimated to be sitting on a cash mountain of around £775 billion and interest rates are now at a historic low.
With expectations that there will be a deep fall in economic output over the next six months, analysts are predicting that the worst will be over by the end of the summer and that economies as well as stock markets around the World will bounce back quickly.
Though there will be knock-on effects, this impact on the level of GDP will be a one-off steep fall and it is imperative that the UK Government deals with this short pause in economic activity and minimises job losses.
Various suggestions have been made as to how this can be done such as the German system of short term working, where firms place employees on less hours and the government pays 65% of the wages thus preventing redundancy. Another potential solution from the USA would be to provide an employment loan equivalent to the tax to be paid by companies over the next six months with a condition that this would be conditional on paying and keeping their staff over the same period.
Certainly, many are predicting that the recently announced £330 billion loan guarantee programme may not be enough to enable businesses in industries hardest hit by the advice on restricting movements - to be in a position to support the millions of individuals they employ.
And it goes without saying that any such wage support should not be limited to businesses but include the five million in self-employment (including two million freelancers) upon which key sectors such as the creative industries are dependent upon.
Given the way that events have developed over the last month, no-one can really predict what will happen over the next six months. However, as an eternal optimist I can only hope that we will get through this quickly and that over the next few years, the UK economy will recover and become even stronger. Whether it does or not, the Covid-19 virus has ensured that nothing will ever really be the same again.