The coronavirus outbreak is impacting the UK economy in a number of different ways: from supply chain disruption to the closure of businesses for public health reasons. This briefing provides an overview of how the virus is affecting the economy, the policy measures introduced to mitigate the impact, and the effect this all has on the public finances.

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This briefing was last updated on 27 March. This is a fast-moving crisis, so please be aware that information may have changed since the date of publication. The Library intends to update this briefing.

For latest data, please see the Library briefing paper Coronavirus: Latest economic data.

The coronavirus outbreak has impacted the economy in a number of different ways.

Supply and demand shocks

The initial disruption was to supply chains (particularly from China, the origin of the outbreak). As the outbreak spread around the world and into the UK, public health measures to slow the outbreak mean fewer people are able to work and businesses in some sectors are shut down entirely.

In addition to these supply shocks, there are also shocks to demand in the economy. Consumers are being advised not to leave their homes and with many businesses struggling to survive, unemployment will likely rise. Consumer spending will likely fall.

There is also a great deal of uncertainty associated with the crisis and how long it will last. This will likely lead to consumers being more cautious in their spending decisions and businesses holding off on investing.

Policy response

Governments and central banks around the world have scrambled to introduce policies that will mitigate at least some of the negative economic impacts from the coronavirus outbreak.

In the UK, a number of policies have been announced by the Government and the Bank of England in order to support businesses and workers. The first package of measures was announced on the day of the Budget, 11 March 2020. Since then, more extensive interventions have been made.

The intention of these measures is to keep businesses afloat and, in turn, as many people as possible employed. The measures seek to financially support businesses, workers and the wider public during the outbreak, as well as attempting to reduce the economic uncertainty.

Public finances

The public finances will be significantly affected by the economic shock of the coronavirus outbreak. The Government’s budget deficit will increase as tax revenues fall and government spending increases. Government debt will, therefore, increase. At this stage no one can say by how much.

The Government has announced around £40 billion of direct tax and spending measures to support individuals, businesses and the economy. In addition, schemes to help businesses retain employees and to support the incomes of the self-employed could cost over £10 billion. The longer the crisis continues, the more this cost to government will rise. The Government will also provide support through loans and guarantees.

Further information on policy measures

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