In 2020, amid the spread of coronavirus, the UK economy risks facing the largest collapse of recent decades. This conclusion follows from the materials of the international audit company KPMG.
According to agency experts, if the British government manages to quickly stop the epidemic, the country's economy will shrink by only 2.6%. Meanwhile, in the case of a further increase in the number of infected, the outbreak of COVID-19 may lead to a more serious drop in GDP - by 5.4%.
According to experts, the pandemic revealed problems in the country's healthcare system, for the resolution of which the authorities began to actively spend budgetary funds. This approach caused a panic among investors and provoked an outflow of capital.
“The coronavirus pandemic has become the dominant factor in the slowdown of the British economy, overtaking in its significance the consequences of the country's exit from the EU. The rapid spread of the disease forced the authorities to take harsh measures to socially isolate citizens, which negatively affected the pace of industrial production and the volume of domestic demand, ”KPMG economists say.
According to official data from the World Health Organization (WHO), the total number of coronavirus infected in the world has exceeded 300 thousand. At the same time, the UK is among the ten countries with the largest number of infected and has more than 5 thousand patients.
“The British have already missed the process of spreading the infection in the first stage, so you should not expect a quick relief of the disease. The pandemic will hit key sectors of the economy, including industrial production, foreign trade and the services sector. Even if the outbreak of the virus in Britain lasts until the end of the summer, the likely decline in GDP by the end of the year will be 5.5-6%, ”Anastasia Nevskaya, senior researcher at IMEMO RAS, told RT.
It is expected that the decline of the British economy by more than 5% may be the largest in almost 60 years. According to the World Bank, since 1961 the figure has not decreased by more than 2.5%. The only exception was 2009, when against the backdrop of the global financial crisis, the country's GDP dipped by 4.2%.
“Because of the coronavirus, the entertainment industry, the tourism sector and the service sector as a whole are suffering. Britain's place in the world division of labor is precisely connected with services, and it involves the most labor force. The government, aware of this dependence, is trying to mitigate the effects of the crisis by paying the British 80% of the salary in the event of a job loss. But the standard of living of the population will still drop significantly, which will negatively affect the indicators of consumer activity, ”said Sergey Suverov, senior analyst at BCS Premier, in a conversation with RT.
A similar view is held by economists at KMPG. As a result of falling incomes and forced isolation, the British will spend less, which will lead to additional costs for owners of shops, restaurants, cinemas and other areas of leisure. According to analysts, consumer spending in 2020 will decrease by 2.5%, although as early as 2019, the figure grew by 1.4%.
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In addition to coronavirus, a sharp collapse in world oil prices had a certain pressure on the country's economy. Since the beginning of the month, the raw materials of the Brent benchmark on the ICE exchange in London have almost fallen in price and are currently trading near $ 25.5 per barrel.
“Although Britain is not a key exporter of oil, cheaper raw materials bring significant losses to the country's mining industry. This is especially true of British energy companies that produce oil in the North Sea. At one time, the business has invested millions in the development of this area and hoped that high prices for raw materials will help to quickly recover costs, ”FINAM analyst Alexei Korenev emphasized in an interview with RT.
It is curious that Britain’s exit from the EU allowed the country to avoid more significant losses, experts say. Recall that Britain left the European Union at the end of January 2020 - three and a half years after the referendum on withdrawal from the union. As expected, the transition period will last until the end of 2020, during which Brussels and London will have to agree on mutual trade conditions.
“If Britain continued to be a member of the EU, then London would have had to provide assistance to Italy and Spain, which the epidemic affected most in Europe. Subsidies to fight the virus in favor of the countries participating in the European Union would be another blow to the economy of the kingdom, ”said Anastasia Nevskaya.
Money panic
The worsening economic situation has already triggered a record collapse in the UK financial market. To date, the country's main stock index, FTSE 100, has dropped to an eight-year low and is trading near 4960 points. At the same time, the massive sale of securities is accompanied by a massive weakening of the national currency of the country.
Since the beginning of March, the British pound has fallen in price by 10% against the dollar and reached its lowest level in the last 35 years. The lowest rate was recorded on March 20, when the corresponding rate fell to $ 1.14. The last time a similar value could be observed in early 1985.
Now the rate has somewhat recovered - up to $ 1.16. However, analysts highly appreciate the likelihood of further depreciation of the British currency.
“Investors fear that the virus could adversely affect the flow of foreign capital into the country. They understand that for the stable functioning of the financial system of Britain, cash injections are needed. Nevertheless, now many prefer to invest in less risky assets, and British securities and currency are no longer such. If the authorities do not take any significant anti-crisis measures, the exchange rate may drop to $ 1.08-1.1, ”concluded Sergey Suverov.