UK Economic Update: COVID-19

Scenario-based analysis of the potential short-term impacts of COVID-19 on UK economic growth

As well as serious implications for people’s health and the NHS, coronavirus (COVID-19) is having a significant impact on businesses and the economy. With such a fast-moving situation, we will be updating our analysis of the UK economic impact regularly to help you with your response and planning. New and updated insights will be available every week.

Key points - 27 May

The latest economic data indicates a significant continued fall in consumption and trading activity.  Retail sales declined by a record 18% in April, while the latest Purchasing Managers’ Index (PMI) indicates a continued steep downward trajectory for private sector output. VAT receipts were 44% lower in April compared to last year.

More recent data on public sector finances also show that public sector net borrowing in April has increased to £63.5bn in a single month, which is almost as much as net borrowing levels for the whole of 2019/20. This is supportive of our view that there will be a very large rise in borrowing this year.

 

Our illustrative COVID-19 scenarios for the UK economy remain unchanged. They envisage GDP growth in 2020 to range from around -7% to -13%. There should be a recovery later this year and in 2021, although the level of GDP may still be around 1.5% to 7% below pre-crisis trends by the end of next year.

Our scenarios for public finances remain unchanged. We expect the budget deficit to peak at around 15-22% of GDP in 2020/21 in alternative scenarios. We still expect the deficit to fall significantly to only around 5-10% of GDP in 2021/22 as the economy recovers and temporary fiscal support measures come to an end once the crisis has passed. However, the extent of the reversal will depend on whether any further fiscal stimulus measures are introduced to provide a boost to the economy.  

These budget deficit levels would still be somewhat above the 3% of GDP ceiling consistent with long term fiscal sustainability, so it is possible that some tax rises may be needed eventually to help to stabilise the public debt to GDP ratio. But any such measures should only be considered once the economy has made a full recovery from the current crisis.

 

The results from our sectoral scenario analysis remain unchanged. The worst-hit sectors in terms of short term economic damage continues to be the food service (e.g. restaurants and pubs), hotels, retail and transport sectors. In our ‘Smooth exit’ scenario, these sectors shrink by 15% to 25% in 2020, relative to a baseline without COVID-19. In our ‘Bumpy exit’ scenario, these sectors could suffer a negative GVA impact of around 25% to 40% in 2020. 

New PwC Research survey results suggest that around 60% of people still employed in mid-April were able to work from home. But this rose to around 70% for those earning above £50,000 a year, as compared to only around 40% of those earning less than £20,000. 

The survey also found that high earners were more able to work from home without any significant loss of productivity (or even gains due to saving on commuting time), while lower earners were more likely to report a loss of productivity due to working from home.

Our survey also found that around three quarters of workers earning more than £50,000 a year remained employed in mid-April, as compared to only around half of those earning less than £20,000. But most of those no longer working have been furloughed rather than laid off. This is consistent with the latest government data showing that over 6 million workers have now been furloughed and been registered for payments through the Job Retention Scheme.

We also found some regional variations in the proportion of workers either furloughed or losing their jobs since the lockdown began. These negative impacts were highest in the North East of England, followed by the South East and Wales. London had a relatively low proportion of workers furloughed, but more facing reduced working hours or redundancy. But there will also be important variations within regions, for example with coastal towns heavily dependent on tourism being hit particularly badly.

Contact us

Nick Forrest

Nick Forrest

UK Economics Consulting Leader, PwC United Kingdom

Tel: +44 (0)7803 617744

John  Hawksworth

John Hawksworth

Chief UK Economist, PwC United Kingdom

Tel: +44 (0)7841 803665

Jing Teow

Jing Teow

Senior Economist, PwC United Kingdom

Tel: +44 (0)7525 281974

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