This archive report was first published on 13 June 2020.
On April 1, the UK economy suffered its worst contraction since 1709, with a historic 20.4% decline in economic output. This unprecedented downturn has put immense pressure on the government to launch stimulus programs to support economic recovery.
As part of its efforts to mitigate the economic impact of the lockdown, the government has been paying 80% wages to approximately 8.9 million people through a state aid 'furlough' scheme. Additionally, the government has also been providing unemployment benefits to 2.1 million people. As a result, the UK taxpayer is shouldering the wages of 11 million people, amounting to £27 billion (approximately KSh3.6 trillion).
According to a report by the British Office of National Statistics, the service economy bore the worst of the brunt, with dominant services falling by 19%. Manufacturing fell by 24.3%, while construction plummeted by 40.1%.
As the UK economy struggles to recover, economists expect the Bank of England to increase bond-buying by at least £100 billion. Furthermore, Bloomberg predicts that the bank will cut interest rates to 0% and possibly implement a low yield curve to keep bond market rates low.
However, UK economist Andrew Wishart remains optimistic, believing that the UK economy will recover after the easing of the lockdown in May. Nevertheless, the government will still need to develop mechanisms to stimulate activity in the economy.
“Given the lockdown started to be eased in May, April will mark the trough in GDP. So we are past the worst,” said Andrew Wishart.
