The U.K. has one of the largest economies in the world, but the state of its economy was far from being ideal even before the coronavirus pandemic. It is worth mentioning that the Bank of England is injecting another $195 billion into the country’s economy, after warning of a double-dip recession because of the pandemic and an uncertain outlook because of Brexit. As can be seen from the information stated above, the country is struggling to cope with the problems created by the pandemic as well as Brexit.
Based on the information provided by the Bank of England, it made the decision to keep interest rates unchanged at a record low of 0.1%. However, the central bank decided to increase its purchases of UK government bonds to $1.1 trillion.
According to the Bank of England, restrictions introduced to contain a rapid rise in coronavirus cases would weigh on consumer spending. Moreover, coronavirus cases would create even bigger problems than the bank projected in August, leading to a decline in the gross domestic product (GDP) in the fourth quarter of this year.
The economy of the UK and coronavirus pandemic
It is worth noting that, England re-entered a national lockdown on Thursday. The government made the decision to close non-essential businesses until December 2. Two days, ago the United Kingdom reported its second-largest daily increase in coronavirus cases.
The government is working hard to soften the blow to households and businesses. The UK finance minister Rishi Sunak on Thursday announced the British government would extend its furlough program through March 2021. Importantly, the government will pay 80% of the wages of employees of businesses forced to close, capped at $3,270 per month.
Interestingly, the lockdown, as well as unresolved talks on a post-Brexit trade deal with the European Union, had a negative impact on the economy. As a reminder, without the EU deal, UK-based companies face hefty tariffs, quotas, and other barriers to doing business with the country’s main export market from January 1.
People should take into account that, the central bank expects the economy to shrink by 2% in the fourth quarter. Importantly, the Bank of England expects the economy to shrink by 11% in 2020.
Moreover, over the longer run, long-term problems created by the pandemic will reduce the country’s economic output by roughly 1.75%. Importantly, the GDP is not expected to surpass the level it reached at the end of 2019 until the first quarter of 2022.