"We expect a slow and difficult economic recovery in the UK"

Text by: Ariane Gaffuri Follow

In the United Kingdom, hit hard by the coronavirus, the Bank of England decided on Thursday to maintain its key rate at 0.1% and to inject an additional 100 billion pounds sterling into the British economy ( around 110 billion euros). The bank is thus increasing its government bond purchase program to £ 745 billion (around € 824 billion), in order to promote the country's economic recovery. You should know that the British economy fell by 20.4% in April and more than 600,000 salaried jobs were lost between March and May. In contrast, the 3.9% unemployment rate in the first to the first quarter hardly increased from that of 3.8% last year. How to explain this situation ? Thomas Pugh is an economist at Capital Economics, a London-based think tank.

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Thomas Pugh: Unemployment in the UK is ... strange right now. The government's partial unemployment plan, which made it possible to pay the wages of company employees, was a real success. 10 million people benefited from it, or a third of the working population in the United Kingdom. This slowed the explosion of unemployment linked to the closure of companies and confinement. This is why the unemployment rate, 3.9%, has increased only slightly. This first phase was therefore effective, but it is the after question. It is expected that this system will stop further in late October. It is much earlier than other European countries. If, at the end of October, many companies realize that the demand is not strong enough to rehire their employees, then there will be an explosion in unemployment, unless the government decides to extend this scheme.

RFI: Consumption is an essential factor in the economic recovery. What about the UK?

According to the latest data, the money that British households have in the bank has increased considerably in the past two months. This is not surprising since consumption has also dropped. With partial unemployment, most people have received only 80% of their wages. They consumed less and saved more. But these data hide larger problems. Part of the company was able to telecommute without loss of pay, while another part was unable to work at all. Her income melted and she had to dip into her savings. These people have very low wages, little or no savings because they spend everything they earn. If, after the crisis, people continue to save, and if their wages do not return to normal, this will considerably slow down demand and the recovery may be slow.

In addition to the economic crisis linked to the coronavirus, there is Brexit, the exit of the United Kingdom from the European Union planned for the end of the year…

We expect a slow and difficult economic recovery in the UK. This is partly because deconfinement is done slowly here compared for example to the United States. And Brexit is going to be an obstacle on the road to recovery. Negotiations do not seem to be going well at the moment and the United Kingdom has formally announced that it has no intention of extending the transitional period. But we think there will be some sort of agreement that will prevent a radical change in trade relations at the end of the year. It is this pattern that we have known throughout the negotiations. The discussions block terribly and, just at the last minute, there is a breakthrough or a dodge which prevents a total rupture. We expect this this year. If this is not the case, if there is a hard Brexit without agreement, this will have important consequences for the economic recovery in the United Kingdom.

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