Is the UK Economy on the Road to Recovery?
Amid Finance Minister Rishi Sunak’s expression of optimism over the expected rebound, the UK’s economic recovery hit a slump anew since last July and remains as the last quarter of 2021 approaches.
The UK’s economy in a glimpse
Owing to the resurgence of COVID-19 cases due to the fast propagation of the Delta variant, the UK’s gradual economic recuperation was halted. Offsetting the lifting of the lockdown until August, more haulage companies are facing a shortage of lorry drivers to deliver necessary goods and products to local shops. This was even aggravated by post-Brexit regulations that constrain the movement of supplies to and from the UK and EU.
Different business surveys conducted this 2021 reports also reveal that the measly increase in GDP during the early months of the year can lead the UK to stagflation, meaning a weak economic growth with shortages driving up prices at an unprecedented pace.
How is this snag going to persist as we move towards the end of the financial year?
Consumer confidence and spending habits
2021 proved to be a promising start for consumer discretionary spending. Subsequently, the first and second quarters of the year witnessed a progressive soar in consumer confidence, which correlates to various aspects such as security in health and wellbeing, easing of restrictions, and vaccination efforts. These post-pandemic consumer trends continued until June but met a downturn at the onset of July as the influx of new COVID-19 cases resurfaced.
According to the Growth from Knowledge (GfK) survey, the overall consumer confidence index contracted from negative eight (-8) to negative thirteen (-13) this month. The major purchase index suffered a 3-point decrease since last August, inferring a depression in retail and small businesses who wish to boost their sales.
Take a look at the GfK September 2021 findings.
All metrics took a dive in comparison with the previous month’s measures. This reflects the worries of ailing consumers on growing inflation, supply crunch, and skyrocketing unemployment numbers, thus translating to a bigger blow in terms of consumer confidence.
Expectations in personal financial situations for the next 12 months and savings index warn a season of lower spending and hitting a new low for economic prospects.
How the pandemic changed spending habits
Stability in personal income can be traced to benefits such as government reliefs, job retention schemes, and stimulus cheques when the pandemic began. Deloitte backs this up in their Quarter 2 report saying that the household saving ratio elevated from 16.1% (Q4, 2020) to 19.9% (Q1, 2021).
Closure of non-essential establishments and the halt of leisure and travel operations restrained consumers from spending. In addition, the increasing concerns in job security pushed households to create a financial safety net so they have something to fall back on in case the cost of living goes higher.
Deloitte uncovers that consumers are divided on what to do with their savings. 17% asserts they do not intend to use their cash reserves next year, 58% are planning to spend their savings in the next 12 months, and 4% are still deciding whether to spend or not. However, once people decide to act on their pent-up discretionary spending, they can give the UK’s economy a great bolster.
Jobs and Unemployment
Come August, the UK hit another record in their history— the job vacancy count went up to a million, following the easing of lockdown rules. A recorded 1.9 million furloughed jobs exacerbate the inflation the UK faces, and this unemployment rate, which is even higher than before the pandemic, and threatens to persist for a longer time.
Employers are frantic to recruit workers. With this kind of scarcity of workers, small businesses and firms cannot fully resume their operations. The national shortage of lorry drivers is a good case that exhibits how inadequate employees in logistics affect the supply and delivery of goods from the supplier to the consumer, which in turn, delays the reopening or resuming of business.
Recruitment and retention
The prevalent game plan employers are planning to deploy is to raise wages, especially those with hard-to-fill job openings.
The National Health Service (NHS) has created a phenomenon of pingdemic due to their COVID-19 tracer app that has ‘pinged’ thousands of people who had active contact with a COVID positive user. This caused an issue of many healthy workers to isolate, and further worsen the current shortages of workers.
According to the Chartered Institute of Personnel and Development (CIPD), 69% of employers are planning to hire new people. The hospitality and leisure arena is the frontrunner with 51% hard-to-fill vacancies, followed by the healthcare industry acquiring 49%, and manufacturing and construction at 47%. So to address this challenge, 44% of these employers are about to upskill their existing staff, while 23% intend to raise their employees’ wages. Some companies are also offering sign-on fees and bonuses to lure applicants.
Other options employers are looking at to solve worker inadequacy is to include hiring apprentices, introducing automation at work, improving job quality, and more of the same solutions.
Sunak is positive that the majority of jobless and furlough will get back on track after the government wage subsidy is lifted at the end of September. He says the government’s plan to save people’s jobs and get people back to work is working, although there may be bumps along the road.
Despite the UK Chancellor’s confidence, authorities have underlying perturbations about the inevitable job losses as they end the scheme. Much as millions are moving off from furlough, the closure of the wage subsidy parallels unavailable funding for employers to retain staff in their payroll. It’s expected that they [employers] opt for redundancy since there may not be enough work to go around for all the staff.
A part of the UK’s economic recovery strategy, the government, in cooperation with the relevant ministries, provided reliefs, grants, and tax deferment for eligible organisations and employees in an effort to weather the pandemic.
For business loans:
- Recovery Loan Scheme
For tax measures:
- Business Rates Relief
- VAT Deferral
- Pay your Self Assessment Tax in Monthly Installments
- Loss Carry Back Extension for Businesses
For employment benefits:
- Statutory Sick Pay (SSP)
- Support for the Self-Employed
- Coronavirus Job Retention Scheme (CJRS)
All UK government business support grants are regularly updated and posted in the HMRC page.
Extension of the CJRS
There have been clamours to stretch the CJRS to a longer period, and the government is still looking into extending the scheme before it scales back by the end of September.
Under the furlough grant, there is an agreed percentage of payment between the government and the employer. The former pays up to 80% of the worker’s income, a maximum of £2,500 monthly, to encourage business owners to retain employees in their payroll. Scaling back this financial support would create a swarm of unemployment to a 2 million high.
Fully withdrawing the CJRS stalls the UK’s pandemic recovery as well. As a result, the labour market potentially looks at a prolonged scarcity of talents and enduring inflation for the United Kingdom and its constituent countries.
The UK economy recovery grapples due to surrounding circumstances such as labour market strains, supply scarcity, and government subsidies coming to an end. Moreover, the pandemic and the post-Brexit implications are starting to reverberate to the United Kingdom’s various industries. Whether they falter or successfully recoup with the next normal’s phase will be determined by the next steps the government takes in the coming months.
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