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UK economy shrank 2% in 3 months – Covid-19 impact & recovery path 

Published On May 15, 2020
In covid, Blog Archives


By December end 2019, doctors in Wuhan, China were dealing with an unusual type of pneumonia – a mysterious illness – which we now know as COVID-19. Spreading like wildfire, the Novel Coronavirus has caused the world a huge setback since its outbreak in January 2020. As the world started to realize what this mysterious illness really was and how it was different from a normal flu, the worried scientists in the UK found it hard to resolve the multidimensional problems posed by this fast spreading contagion.  

Brexit coinciding with coronavirus

Basking in the success of the general election, Boris Johnson, the prime minister of the UK had his focus fixed on Brexit as the UK was set to bid adieu to the European Union on January 31st, 2020. The whole country was prepping for the big day with all the fireworks in place and big parties planned, not to forget the celebratory minting of 50p coins. The people of the UK had their minds fixated on the Brexit and they weren’t really concerned about an alarming health emergency developing in other parts of the world.  

With Brexit taking the precedence in UK, the government authorities had iconoclastic ambitions as Johnson had planned to reshuffle the Cabinet to assert his power once the Brexit was done. With priorities not set in the right manner and lack of concerns towards a worldwide crisis, the UK fell hard to the COVID-19 wave. The entire team of scientists and medical advisers in the UK were sleeping at the wheel. The fact that both prime minister Boris Johnson, health secretary Matt Hancock and several other Downing Street personnel contracted COVID-19 suggests that the guard was weak at the top. 

The delayed response has put the UK in an economic mess where the total number of cases as on 14th May – 9am, were recorded to be 233,151 and total overall deaths 33,614. Now, with nationwide lockdown in action, the UK economy faces prolonged recession with no signs of recovery in sight, at least this year. The finance minister of UK, Rishi Sunak, announced that the country’s economy shrank by 2% in the period of Jan-Mar in 2020 due to coronavirus-induced lockdown and it was facing a significant recession at the moment. The Office for National Statistics (ONS) in the UK recently released data which shows that every sector of the economy has been affected due to coronavirus.  

Economies are expected to enter recession - coronavirus

How did the situation become so grim?

The World Health Organization (WHO) issued a warning on 30th January, to all the governments, that something serious is coming their way. While the world still contemplated the situation, few countries started realizing the deadly nature of the disease and formulated emergency responses. Countries like Germany and South Korea had started investing in huge amounts to expand their testing capacity during the early phases of the epidemic. Strict contact tracing was being done in China, Singapore and Taiwan as they encouraged self-isolation and usage of face masks. 

By early March, scientists in UK realized that the country’s approach to the pandemic was different that the rest of the world. As said by the head of Global Public Health at University of Edinburgh, Devi Sridhar, rather than following WHO’s advice and learning from the rest of the world, the UK followed its own path. The UK’s plan to embrace “herd immunity”, as explained by the chief science adviser, to let most of the people contract the virus, develop antibodies and eventually become immune to the disease.  

It wasn’t just the UK alone, France and Spain also showed delayed responses in the early stages. It was indeed the tragedy in Italy that prompted Europe to take serious action. As a matter of fact, Italy and the UK both reported their first covid-19 case in January end. While the situation worsened in Italy and it finally embraced nationwide lockdown on 8th March, the UK on the other hand was reluctant towards the idea of lockdown. Fearing that the people of Britain wouldn’t tolerate lockdowns for long, as analysed by the behavioural science advisors, the ministers didn’t take any decision. Even the Cheltenham Festival with over 250,000 racegoers wasn’t stopped from taking place from 10th to 13th March.  

It was on March 18th that the UK government took a sharp U-turn and announced closures of schools and colleges but, it was too late. The country now, was is no shape to escape the consequences rushing towards them. The NHS wasn’t prepared to handle such a massive outbreak which led to the government being criticised for lack of PPE’s and ventilators in the intensive care units. An amalgamation of all these events led to the massive fall of the UK economy. 

Will the UK economy be able to weather the coronavirus impact?

The UK didn’t see COVID-19 coming. With multinationals focused on Brexit, and analysing how it would impact their growths and supply chains, they weren’t concerned about anything else. But, as the coronavirus started to spread like forest fire, and supply chains across the world started to collapse, the manufacturing PMI plunged to 32.9 in the month of April – the lowest ever.  

A study by the Enterprise Research Centre reports that in March alone approximately 21,000 UK businesses were permanently erased due to the pandemic. With the view towards the exit path looking hazy, this catastrophe might make the economic graph look either like a swift recovery phase – a V-shaped or a gradual dip, a flat growth and then recovery – U-shaped.  

As predicted by the Office of Budget Responsibility, the UK economy could shrink by 35% and unemployment by 10%. If the lockdown measures prolong, the numbers could even increase. Also, some economists believe that the economic graph could look like an L-shape due to huge losses to companies for a long period of time. In response to this, the country nationalised 1.5 million companies under the furlough scheme.  

Manufacturing industry is in difficult waters

The unprecedented times of the coronavirus pandemic has posed a huge threat to the UK economy. Facing the wraths of the deadly disease, the entire production capability of the country has come to a standstill. Deceleration of the global demand and issues with raw material availability has put the manufacturing industry into a difficult situation.  

Due to the impact of Brexit, the economy of UK was already highly volatile with immense investment uncertainties and production outputs. Four industries – food production, machine repairs, automobiles and other transportation equipments have played a significant role in helping the recovery of the manufacturing industry (as well the entire economy) since the recession of 2008. In the past decade, the country has seen a significant rise in the exports in manufacturing, F&B, chemicals & machines and equipments. 

UK’s 5 steps to end lockdown

Now that the total number of coronavirus cases and deaths in the UK are declining, the prime minister has drafted a 5-step plan that will be executed over the next six months so as to pull the country out of the lockdown. The 51-page “roadmap” will help the country revert to normalcy.  

5-step to end lockdown in UK
UK daily coronavirus cases

Final words 

The UK is facing the biggest ever economic slump in over 300 years. With efforts for recovery in place now, the whole country is bracing for the consequences this pandemic has incurred. In order to counter the lockdown effects, various stimulus measures are being adopted by Bank of England with an aim to help the economy bounce-back in 2021. 


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