COVID-19: Weekly Economy Summary – 18 February

The Economy Summary is part of our Weekly COVID-19 Bulletin, sent every Thursday. You can sign up to receive your copy here.

Data from the Office for National Statistics shows that the UK economy shrunk by a record amount (9.9%) last year, more than twice the previous largest annual fall. However, it grew by 1.2% in December when some restrictions were eased, making it likely that the UK can avoid a double-dip recession.

As stringent Covid-19 restrictions are expected to remain elevated until early spring, along with the effects of post-Brexit adjustment, the NIESR’s forecast is for GDP growth to decline by 3.8% in the first quarter of 2021.

The Treasury Committee has published the third report of its inquiry into the Economic Impact of Coronavirus – ‘Gaps in Support and Economic Analysis’. Its recommendations include: Government must set out criteria for how and when it will lift lockdown restrictions with economic and epidemiological modelling to support it; HM Treasury should be more transparent with economic analysis that informs Government decisions; HM Treasury should use 2019-20 tax returns to help the newly self-employed; Eligibility for Government support should be extended to those missing out, including limited company directors and freelancers.

The IPPR think tank released a new briefing paper, in which Chancellor Rishi Sunak is urged to quadruple the Government’s planned crisis spending to £190bn in order to restore jobs, investment, and services. Failure to deliver such a boost risks condemning the UK to a ‘stagnation trap’ with about half the rate of economic recovery. It would mean lower business investment and leave unemployment at more than 10% in spring next year.

The British Chambers of Commerce published a new COVID survey that finds that 25% of respondents say they will have to make staff redundant if Government financial support ends in March and April. The BCC is calling on the Government to keep financial support going while firms reopen and rebuild, with a clear roadmap for reopening to help increase business confidence.

Similarly, a £13bn tax rescue package could be key to reviving the economy, boosting the hospitality sector and saving summer holidays, according to a report from The TaxPayer’s Alliance. The report claims an extension to the Chancellor’s business rates holiday and VAT reduction would create tax cuts of £9.4bn and £3.5bn respectively in 2021-22, a total of £12.9bn. If extended until after 2022-23 as proposed, this would generate total savings of £25.6bn for the sector over the two years.

Labour set out new plans to back British businesses, as it calls on the Government to help ease the Covid-debt burden faced by firms across the country. The party suggested converting the Bounce Back Loans (BBLs) scheme into a ‘student-loan style’ arrangement, so that businesses only have to start repayments when they are making money. Labour also called for the establishment of a British Business Recovery Agency that would manage the Coronavirus Business Interruption Loans Scheme (CBILs) and Coronavirus Large Business Interruption Loan Scheme (CLBILs) in order to create terms that secure the future of businesses, including employee ownership, preference shares and subordinated debt.

Shadow Chancellor Anneliese Dodds’s business-backing plan comes after a week in which Labour has called for business rate holidays and VAT cuts to be extended and for a smarter furlough scheme to last until necessary health restrictions are lifted.

Almost two millions workers were unemployed or fully furloughed in January and had been for at least six months, according to a report by The Resolution Foundation. The report finds that the number of people on the Government’s Job Retention Scheme (JRS) has risen to around 4.5m during the current lockdown, almost half of the peak during the first lockdown; indicating that firms have adapted to operating during the pandemic.

The report calls for the full JRS to remain in place for several months after public health restrictions have been lifted to give firms time to bring staff back, and remain in place for longer in sectors still subject to legal restrictions, such as hospitality and leisure.