UK in recession for the first time in 11 years. What does this mean for you?
Covid-19 has undoubtedly seen a financial downturn for communities and businesses across the UK, and the economic impact has become more noticeable now that the official data is catching up with the reality on the ground. On 12th August, reports showed that the UK is officially, according to the GDP figures, in a recession for the first time in 11 years with the economy shrinking by over 20%.
With unemployment on the rise and the permanent closure of many shops and businesses, what does the recession mean for you? And how can Bristol Credit Union help support the local economy through turbulent times?
What’s caused the recession?
The decline in economic activity during the national lockdown has caused a huge fall in GDP. The Government has lost money by failing to collect taxes from businesses and has spent unprecedented sums in economic support. This has helped boost aggregate demand, and means the fall in GDP has probably not been as severe as it might otherwise have been.
With the lockdown in place since March, many sectors, particularly retail, hospitality and aviation were left unable to operate services. Support has been needed to financially secure those in need during the lockdown. Through the furlough scheme and the provision of £500 million to fund households experiencing financial hardship, the government has helped to prevent short term damage, but the economy has still been severely impacted.
With this economic decline, businesses have stopped investing. As of 20th September 2020, the total number of jobs furloughed reached 9.6m, with many still on the scheme, indicating that many companies are still not earning the same level of profit they were before March 2020.
What are the effects?
Across the media, we’ve seen redundancies from major corporations in various sectors. In retail, the names have included M&S cutting 7,000 jobs and John Lewis closing 8 stores, the equivalent of 1,300 jobs - and this is just the beginning.
Closer to home, Marvin Rees revealed that the Bristol economy has at least 8,000 fewer jobs from August figures, during the State of the City address on 14th October.
On 11th August, those seeking unemployment benefits between March and July soared to 2.7m. With the furlough scheme ending in October, this number is likely to grow further. The replacement scheme has attracted criticism in doing little for those sectors that are still unable to fully open, such as the arts.
According to The Guardian, growth had rapidly recovered once lockdown restrictions were lifted in the summer months, with the ‘eat out to help out scheme’, putting the UK on track for the fastest growth in the G7 in the three months to September. The BBC reported that the economy grew 2.7% during August, but this is still 9.7% smaller than pre-covid. However, this progress would be halted if, and now when, restrictions are reintroduced, which would ensure the country remains in a recession until the end of next year.
A Government under pressure
The UK Prime Minister, Boris Johnson, acknowledged that “there was a long, long way to go” before the economy improves. This begs the questions: what will the government do to support those people and industries financially affected by the lockdown? Will there be loans or schemes to prevent businesses from cutting further jobs?
The Governor of the Bank of England backed the government’s decision to end the furlough scheme. He predicted the economic slump may be less severe than expected, but that the recovery may take a long time. Of course, this was before the start of what we might now see as a confirmed ‘second wave’ which is already forcing more local restrictions, resulting in the possibility of a national ‘circuit breaker’ lockdown.
Some Conservative party MPs have been putting pressure on the government to increase universal credit, or at the very least maintain the current temporary increases that will otherwise expire next March. These efforts have been led by Stephen McPartland who has been pushing to make universal credit better for all for some time. An adequate level of income support is necessary if families are not to be forced to choose between food and heating this winter.
The current level of rent support through universal credit is small too, and this can vary depending on location, with people being left unable to pay their rent. This needs to be urgently addressed to prevent a wave of evictions and increasing homelessness.
The Bristol Mayor, Marvin Rees has spoken about the “very real and raw challenge” that lies ahead once the safety buffers are removed. At a press briefing on 2nd September, he said:
“The consequences of it just being lifted; joblessness, people not being able to pay their rents. If it comes at the same time as the removal of protection against evictions, we can see a whole lot of trouble coming our way, so we will keep lobbying the Government.”
Although the circumstances may be different, there’s a lot to learn from past recessions. The recession has been considered the worst since records began, eclipsing the 1992 ERM crisis, the 1997 housing-led crisis and most recently, the 2008 banking crisis. After 10 years of austerity measures, we could see even more cuts to public services, which undoubtedly will make more people less financially secure as the government tries to find ways to recoup its expenditure on support measures and loss of income through forgone tax.
A long way to recovery
Global economies are expected to recover by late 2022, providing a vaccine is made available. That means another 24 months of economic turbulence and a rollercoaster of financial winners and losers.
For us, at Bristol Credit Union (BCU), attention and support must be provided to those who have already been most affected by CV19, and who were struggling most even before the current crisis, including those who are in hardship and struggling to pay bills or to access support. Looking back to our first ever Social Impact report, it is clear that helping people in this situation provides strength and resilience to our local economy, and will help us to claw our way out of recession. But there’s still more that needs to be done.
At BCU, we are looking at new ways to support and retrain people in sectors, such as retail, where jobs are unlikely to return post-Covid. Whether it's specific retraining loans, support for those starting new businesses or co-ops or other measures I believe we have a responsibility to think about how credit unions can help the community and the UK build back better.
BCU is locally owned and accountable on a sufficient scale to do something meaningful. We’ve recently taken on three new colleagues to support members with their loan repayments. During the lockdown, we introduced interest free loans for NHS workers to help them afford essential items and utilities throughout the crisis.