The coronavirus is arguably the greatest economic threat we have had to face in modern history, with the International Monetary Fund declaring it as far worse than the Great recession. With the end of the virus hard to foresee it can only lead to more instability and uncertainty in the market. I will be explaining my ideas and predictions in regards to a potential recession, rates of unemployment and inflation.
On 23rd March, the UK government called for the closure of all non essential businesses such as restaurants, gyms, hairdressers, cinemas and pubs.
This inevitably led to almost no demand for these businesses and no revenue going into the firms. This lack of revenue may impact business as they could struggle to pay for website fees or to pay employees while they are on leave. Moreover, this could lead to firms having to fire these employees, making them redundant.
This is especially significant for businesses such as hairdressers and pubs that cannot conduct business online, unlike therapists or marketing consultants that can continue (albeit with some difficulty) their business online and continue to make revenue, so therefore they could afford to lay off less workers.
Yael Selfin, chief economist for KPMG said “We estimate that as many as 13m jobs are in sectors highly affected by the lockdown, representing 36 per cent of all jobs in the UK.’’
However, the government has announced that they would be paying 80% of wages for staff on furlough. This has allowed some people to keep their jobs and to keep incomes coming in. In the long run, when business can reopen, firms would then struggle to pay enough wages for workers to maintain a decent living standard due to the little/no revenue that came in during the lockdown and wouldn’t be able to afford skilled workers- Therefore, unemployment will be at an all time high.
The price of toilet paper,hand sanitiser and vegetables has increased but this is primarily due to supply-side complications engendered by the rocketing demand for these goods and slower international trade due to more trade restrictions.
Conversely, the UKs overall inflation rate fell to 1.5% in March, as less demand for non essential goods occurred. Sarah Hewin, senior economist at Standard Chartered bank said that this fall in inflation is ‘’an indication of the steep recession we will see in coming months.’’
After the virus recedes, then people will still be uncertain about when and what to buy, and will save their money due to the fact that many people made little/no income during the lockdown.
The Bank of England will most likely reduce interest rates to encourage people to buy from small businesses affected by viruses to increase demand in the economy and reduce the drasticity of the recession we will most definitely be in. This may be effective but to only some extent; most people will still want to refrain from spending on non-essential goods/services.
Also, we must remember that interest rates are already very low, so a further cut may not be very effective, and the rates can’t really fall much lower than they are already.
In conclusion, the exact details of what will happen to our economy do not remain completely clear, but what we can be certain about is the upcoming recession which many businesses are already starting to prepare for.
Written by Ariana Mokarrami, St Catherine's School
