A year of Covid crisis: a glimmer of economic hope at the end of the tunnel
Twelve months after the pandemic struck the Guardian’s economic tracker reveals real risk of lasting damage
A near-deserted London Bridge in late March 2021, almost a year since lockdown restrictions first began. Photograph: Andy Rain/EPA
Richard Partington Economics correspondent Wed 31 Mar 2021
When Boris Johnson announced the first stay-at-home order, effectively shutting down whole sections of the economy, it was hoped the tide could be turned within 12 weeks. As many months later, lockdown measures are being relaxed for a third time and Britain still faces a lengthy road to recovery from the worst recession for 300 years.
As restrictions ease, the chief economist at the Bank of England, Andy Haldane, warned that despite the reopening of the economy, the risk of a “jobs equivalent of long Covid” remains for workers across the country.
Writing in the Guardian to mark a year since the first lockdown, he said the outlook for the post-Covid transition was set to be smoother than the 1980s, when the jobs market took a generation to recover from industrial decline. However, more support for unemployed workers is needed to prevent lasting damage.
“A useful down-payment on those policies has been provided in the UK, with new initiatives focused on vocational training and lifelong learning. But these will need to increase in scale, and expand in scope, to meet the skills challenge facing the UK economy and limit the long-term scarring to it,” Haldane said.
In the past year, the Guardian has tracked the economic fallout from the pandemic on a monthly basis; following infection rates, eight key growth indicators and the level of the FTSE 100. Faced with the deepest global recession since the Great Depression, the Covid crisis watch also monitored Britain’s performance compared with other countries.
Redundancies across the UK have risen at the fastest rate on record after economic activity collapsed with unprecedented speed, with governments around the world using rolling lockdowns to contain multiple waves.
After sending its population indoors later than other countries and keeping restrictions in place for longer than others last summer, Britain suffered the deepest recession in 300 years. Gross domestic product fell by 9.8% in 2020 – the worst performance in the G7 – thanks to some of the highest infection rates in the world and a higher share of social spending than other nations.
Billions of pounds in emergency state support and trillions pumped by central banks into the financial system helped to prevent a worse reckoning for jobs and growth, while the Covid vaccine offers hope for a stronger recovery as the UK makes faster progress than other big economies.
As lockdown measures are relaxed, UK unemployment is up to 2 million lower than feared last summer, helped by the Treasury’s multibillion-pound furlough scheme – which has topped up the wages of more than 11m jobs since it was launched a year ago.
Retail sales have remained resilient, staging a sharp recovery close to pre-pandemic levels amid a boom in online spending while high street shops were forced to close. With repeat closures in the hospitality sector and many people saving money while working from home, spending on retail has risen as consumer interest in gardening, cycling and DIY boomed during lockdown.
However, clothing sales plummeted and more than 11,000 chain outlets closed for good on Britain’s high streets last year, in a reflection of the upheaval for the retail industry that will become increasingly clear as restrictions are eased and shoppers return to town and city centres.
There are hopes a consumer-led recovery can take hold, fuelled by £180bn of extra household savings built up while spending on commuting, holidays and socialising went down. Tourism and hospitality firms have reported a surge in bookings, in a signal of pent-up demand.
However, savings have mainly been accumulated by higher-earning households and retirees, as low-paid workers and those in more precarious jobs suffered the worst of the financial damage, raising the risk of lasting inequality.
Raising hopes for the post-Covid recovery, the jobless rate fell slightly in January despite tougher restrictions at the start of the year, dropping to 5% from 5.1% at the end of December.
Despite this, the number of workers on furlough has reached almost 5 million. After repeated attempts to close the scheme last autumn when redundancies were still rising, Rishi Sunak used this month’s budget to extend furlough until the end of September. With the economy not expected to return to full strength until at least next year, job losses are forecast to rise to 6.5% after the scheme closes.
Haldane said it should be easier than in the 1980s for unemployed workers to transition to new jobs. This was because job losses have been most heavily concentrated in the service sector of the economy, where skills are more easily transferable.
However, he warned that the hardest hit people in the pandemic were younger workers, the least experienced and those with the fewest skills, and that more was required to support the transition to a stronger post-Covid economy.
“This means the risk of workers facing the jobs-equivalent of long Covid is considerable. Avoiding that chronic economic ailment will require structural, skill-focused policies, equivalent in speed and scale to the demand-side policies already put in place,” he said.