Factory and high street store closures after the coronavirus outbreak will push the UK into a deep recession this year, a study of the economy has concluded.
KPMG’s latest quarterly economic outlook found the UK’s national income (GDP) has already stalled as businesses shut their doors and consumers restrict their spending to food and other essential items.
Looking ahead, the business consultancy said the economy will contract by 2.6% in 2020 if the government gets on top of the crisis over the coming weeks and slump by 5.4% if the pandemic persists through the summer.
Yael Selfin, KPMG UK’s chief economist, said: “The Covid-19 pandemic is first and foremost a human crisis. But there will also be a very substantial negative impact on the global economy and the UK’s economic performance this year and potentially next. Until we know how and when the Covid-19 outbreak will end, the scale of the negative economic impact will be difficult to quantify.
“However, it is now almost certain that the UK is slipping into its first significant downturn in over a decade,” she said.
On Friday, the chancellor, Rishi Sunak, said a new Coronavirus Jobs Retention Scheme would allow employers to apply to HMRC to cover 80% of the wages of staff they keep on up to a maximum £2,500 a month.
Economists said the bill to taxpayers for the government’s unprecedented scheme could run to billions of pounds a month. The Resolution Foundation estimated claims made to cover 1 million employees would cost about £4.2bn over the initial three-month period.
Last week, the Bank of England stepped in to reduce business and consumer borrowing costs after a cut in Threadneedle Street’s base rate of interest to a record-low 0.1%.
In Scotland, a £350m support fund was announced to help those left struggling in the wake of the outbreak as part of Scottish government measures worth about £1.9bn.
Catherine Burnet, a senior partner at KPMG UK in Scotland, said: “The latest economic outlook data highlights the scale of the challenge facing businesses across Scotland.
“Fiscal measures and immediate relief action from the Scottish and UK governments have gone some way to help mitigate some of the damage, but there’s widespread acknowledgement that more action will be needed in the coming months to keep the economy moving.”
Over the weekend, pubs, clubs and restaurants were told to close by Boris Johnson unless they were selling takeaway food for home delivery. Shops, including Topshop, Urban Outfitters and Harrods, have closed, car factories have cancelled shifts or shut down completely, while airports are expected to be at a standstill this week.
Selfin said the UK economy is expected to regain its previous level of output by the second half of 2021, assuming the public health measures put in place stem the rise in the number of cases.
She added: “While both governments and central banks have moved quickly to offer fiscal and monetary policy support to the global economy, more will be needed to shore up the economy in the short term, including measures to help the most vulnerable businesses and households, and prevent a deeper economic slump.
“The impact of the pandemic will be far reaching. It is likely Covid-19 will result in a massive expansion in government debt and this could threaten to dislodge the government’s original vision to ‘level up’ the UK economy, long after the pandemic is past – leaving the chancellor with a big challenge on his hands.”