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, estimates of the impact on GDP, 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 19 June. 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 its progress have meant fewer people working and businesses in some sectors shutting 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. Consumers may be more cautious in their spending decisions and businesses may hold off on investing.
The UK economy is in recession, with indications that the decline in GDP in 2020 will be the largest in the post-War era (when current data records began). The Office for Budget Responsibility and Bank of England have published scenarios where GDP falls by 13-14% in 2020, although estimates are highly uncertain. For context, the current largest single-year fall in GDP in the post-War era was 4.2% during the financial crisis in 2009.
The key question for the economy’s longer-term outlook is how much damage, or ‘scarring’, the recession will leave. The Chancellor has said that this question is one which “occupies my mind”. In particular, once the virus is suppressed and restrictions lifted, “the question is: what do we return to?”
Governments and central banks around the world have introduced policies that will mitigate at 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.
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 measures to support businesses, workers and household incomes that may cost over £130 billion this year. The longer the crisis continues, the more the cost to government will rise.
- Library, Coronavirus hub, containing all Library research on Covid-19
- Library briefing paper, Coronavirus: Latest economic data
- Library briefing paper, Coronavirus: Impact on the labour market
- Library briefing paper, Support for businesses during the Coronavirus (covid-19) outbreak
- Library briefing paper, Coronavirus business support schemes: statistics