Although forecasting the future is a slippery slope for anyone, the sweeping assault of the COVID-19 pandemic coupled with Brexit have set in motion a series of impacts that will have lasting effects on the U.K. economy in 2021 and the times to come.
The pandemic and its ensuing consequences have become so all pervasive that they have become entwined with one and any popular political and social problem affecting the UK. While 2020 was spent tackling an unexpected crisis and its ensuing vagaries, in 2021 and beyond, certain established and inter-related problems can have a major impact on life in the UK. Brexit, the current health consequences of the COVID-19 pandemic, the currency, internal devolution programme, and President Biden are among some pressing concerns being faced by the U.K. currently.
In this blog, we will discuss how the events of 2020 are likely to shape the UK economy in 2021.
The Impact of the Coronavirus
Nearly 64,000 individuals have died from COVID-19 related causes, and due to a sharp uptick in illnesses and fatalities, most of the UK was headed into lockdown again as of mid-December. However, the difference between this lockdown and the others that took place earlier in 2020 is the new vaccine. The UK launched the biggest vaccine campaign in the history of the world on December 8. The vaccine is being provided to persons who are 80 years of age or older, long-term care staff in hospitals, as well as medical professionals at high risk of exposure.
It’s safe to say that the UK was the first to provide the vaccine to its population, considering the initial months’ mismanagement and the proliferation of infections. The vaccine does not eliminate diseases or prevent further spread, as far as we know. Preventing serious sickness and reducing the mortality rate is what it can do efficiently, hopefully.
The Status of the Economy
The vaccination offers much-needed oxygen for the economy to start firing up again, regardless of the exact specifics of what it really does and does not do. That being said, an interesting observation has been made in the UK at the start of the new year. Although the economy has contracted severely, it hasn’t done as poorly as it should have. The global stock markets have indeed been surging. Moreover, the stock markets will most likely continue to rise upwards as the UK government continues to intervene where required. For instance, the dark side of the odd COVID economy is causing an increase in unemployment and widespread tax declines. Moreover, as the UK has a huge service sector, which accounts for about 80% of GDP, it was predicted that Britain’s economy will shrink by around 11% in 2020.
Child malnutrition is growing, which also means that child growth is expected to slow down, increasing inequality between a cohort of children and social classes for years to come. The beneficiaries of this pandemic are those who have had the money to get through 2020, or maybe, even gain from rising stock markets. Rising deprivation and socioeconomic inequality will become more apparent as 2021 continues to unfold. That is, as things begin to open up again, individuals can start to see the impact on the various economic classes of the society . However, Britain has offered a 4.6 billion pound package as relief for companies in an attempt to soften the expected recession due to the COVID-19 outbreak.
The Status of Brexit
For the Prime Minister and a vast majority of the people in the United Kingdom, 31 January 2020 was a remarkable day. That was the day when the UK left the European Union formally. Indeed, the key reason Prime Minister Johnson did not attend any of the emergency meetings held in January concerning the unfolding pandemic was because he was said to be focusing on the momentous Brexit case. The United Kingdom and the EU decided that there would be 11 months to negotiate new laws —’a trade arrangement.’ One of the reasons why the UK reacted so poorly to the pandemic is that ‘Getting Brexit Done’ was the priority of the whole civil service and political leadership.
As of 1st January 2021, the EU and the UK have successfully concluded a comprehensive agreement and have started a new chapter in their relationship. Intensive negotiations were carried out for over a year, but it’s great that now the future of the UK and EU has been successfully and effectively reshaped. In fact, the entire agreement proved to be a great success as such a comprehensive agreement has never been made between the EU and another country in such a record time. Moreover, both sides have equally benefited from the agreement as it provides a smooth passage to a new legal framework, which is what urged all 27 member states to approve the agreement and its provisional application.
While this agreement opens up a whole new set of opportunities for the UK, the agreement also creates a broad economic partnership with the EU, which is sure to prove highly beneficial. Basically, the free trade agreement states that there will be no tariffs or quotas between the two countries, thereby averting any major trade barriers. That being said, it’s imperative for such a partnership to maintain fair parameters, hence, both the sides have agreed on far-reaching provisions to ensure a fair and healthy competition remains between both the countries.
Impact of The Newly Elected US President
Trump’s rise in the US had without a doubt emboldened the force behind Brexit and the anti-EU sentiment in the UK. In fact, ample evidence is available that indicates that Trump and his administration were communicating with multiple entities that were spearheading the campaign to leave the EU. Moreover, many of the tactics that were used to elect Trump in the US elections were also replicated for the Brexit vote, in addition to multiple other similarities between Johnson and Trump, including the COVID reaction, devolution and others.
Hence, Joe Biden being elected the next president of the US, can have far-reaching impact for the UK. Biden has already expressed interest in re-establishing multilateralism and isolating any rising authoritarian forces, while trying to restrict the actions of China. This would most likely mean that Biden’s lead would be adopted by the UK.
There’s no question that one of the UK’s most important problems is the stabilisation of the economy. The roll-out of COVID-19 vaccines would encourage daily life and the economy to get back to something like routine, forecasters say. That will help GDP to bounce back quickly.
That being said, economists are less optimistic than ever that their predictions will come true following the rollercoaster in 2020. Next year’s recovery relies on a successful rollout of the vaccine and the expectation that there will be no more sudden turns in the pandemic. However, with the latest strain of the COVID-19 mutation, which is reportedly more transmissible, sudden twists are expected more than ever. Hence, in such cases, it’s recommended for companies to rely on data analytics to constantly monitor trends and changes in demand to ensure they’re able to survive the new wave of the COVID-19.
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