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 at the end of each month.

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Key points - 24 June

The latest economic data shows that economic activity in April shrunk by 20.4%, the biggest monthly fall recorded. Combined with the decline in growth during Q1, this suggests that the COVID-19 crisis has shrunk the UK economy by around 25% up to April. This was driven by a broad-based decline across all sectors of the economy.

There are some early signs of recovery. 79% of UK businesses have remained in operation, with a further 9.3% having either resumed trading in the last two weeks or are intending to restart in the next two weeks. Following a further easing of lockdown measures from 15th June, we expect more non-essential retail businesses to resume operations.

The pandemic has triggered a sharp, sudden and unprecedented fall in global trade, which has not only disrupted supply chains, but also led to depressed demand for imported goods and services. UK trade has fallen by around 40% in April compared to before the crisis.

Our analysis, which draws on our trade gravity model, shows that UK exports in 2020 are likely to fall by around 6-8% compared to 2019 as a result of the global economic slowdown caused by COVID-19. However, there is still considerable uncertainty over the prospects of UK trade in the short-term, which will depend on the pace of the economic recovery in the UK and its trade partners. Beyond 2020, the UK’s trade performance will depend on the type of free trade agreement that it strikes with the EU following the end of the transition period.

We have revised our projections slightly following the publication of more recent data. Our estimates for GDP growth in 2020 now range from around -8% to -12%. There should be a gradual recovery later this year and in 2021, although a deeper contraction in Q2 could hold back the speed of the recovery in the UK after the initial bounce from leaving lockdown. We estimate that the level of GDP may still be around 1.5% to 7% below pre-crisis trends by the end of next year.

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.