The government's new coronavirus restrictions risk catastrophic economic damage

27th September 2020

The UK government's decision to reimpose coronavirus restrictions risks causing catastrophic economic damage.

The UK economy has only just started to stabilise after the massive contraction caused by the spring lockdown and fresh restrictions may well snuff out a recovery that is very far from complete. Moreover, even the recent fragile economic upturn has only been achieved at a colossal budgetary cost. Paying out gigantic subsidies indefinitely is simply not an option, especially to finance coronavirus interventions whose efficacy is highly questionable but whose damaging impact - to health and wellbeing, as well as the economy - is undoubted.

Just a few weeks ago, we wrote about how Treasury plans to raise taxes sharply were premature and reckless in the context of a barely-there economic recovery. Those plans now seem to have receded, but the recent decision by the UK government to introduce additional restrictions on mobility and economic activity look equally dangerous and misguided.

It is important to understand just how incomplete and fragile the UK's economic recovery has been. GDP crashed by 25% from February to April - a decline more than twice as large as that in Sweden, which has taken a more light-touch approach to dealing with the coronavirus outbreak. Since then, UK GDP has risen for three straight months, but it remains 12% below the level at the start of the year - only around half the GDP losses caused by the Spring lockdown have been regained.

Retail sales recovered well over the summer, regaining their pre-crisis levels. But many important consumer-facing sectors are still partly closed or operating way below capacity. Output in the arts and entertainment sector is still over 30% down from February's level, and output is still 60% down in accommodation and food services. Many firms in these sectors, along with those in much of the transport industry, are on life support.

Meanwhile, foreign trade is depressed, down 20% on a year ago, and a large number of employees (around five million) are still on the furlough scheme, at a cost of around £6 billion per month – a scheme which is about to be wound up.

Read the full article on the Briefings For Britain web site