Many factories and high street stores have had to close due to the coronavirus outbreak, and the consequence could be a deep recession. The latest quarterly outlook from KPMG indicates that the UK’s GDP has already stalled due to businesses shutting doors and consumers restricting their spending. The report forecasts a 2.6% contraction of the UK economy if the government is able to get the crisis under control soon, or a slump of 5.4% if the pandemic is not solved by the summer.
Chancellor Rishi Sunak recently introduced a new Coronavirus Jobs Retention Scheme to enable employers to use HMRC to cover 80% of their staff’s wages up to a maximum of £2,500 per month. The cost to the taxpayer could run into billions of pounds every single month. The Bank of England has also stepped in to reduce borrowing costs to businesses and consumers with an unprecedented cut to interest rates.
Now, the Prime Minister has told pubs, clubs and restaurants to cease all trading except for takeaway services. Many high street shops, including Harrods, Topshop and Urban Outfitters have closed, several car factories have shut down and airports are expected to come to a standstill.
The chief economist from KPMG UK believes the UK economy should return to its previous level of output by the second half of 2021. This is based on the assumption that the public health measures being implemented successfully stop the rise in the number of Covid-19 cases. However, she also claims that despite the moves made by governments and central banks to offer fiscal support for the world’s economy, “more will be needed” to steady the global economy in the short term. This will include further measures to help the businesses and households that are taking the biggest financial hits. She claims it will be necessary to prevent “a deeper economic slump.”
What is clear is that the impact of this global pandemic is far-reaching. Covid-19 is likely to cause an enormous expansion of government debt which throws the government’s plans to ‘level up’ the UK economy into doubt. These effects are likely to be felt long after the pandemic has passed. In short, the chancellor has a huge challenge on his hands. The outlook for UK retail depends largely on the time it takes to get this pandemic under control. It is a turbulent time for a wide range of UK sectors.