Rishi Sunak will deliver his spring statement on Wednesday on the second anniversary of the initial Covid lockdown, with the economy still reeling from the effects of the pandemic and facing new headwinds from war in Ukraine.
In the two years since the government first ordered people to stay indoors to guard against surging infections, the country has gone through huge economic changes. The initial turmoil and uncertainty eventually gave way to a gradual recovery, but UK households are now facing a deepening cost of living crisis amid high inflation and soaring housing prices. energy aggravated by Vladimir Putin’s invasion.
Britain’s economy has suffered the worst recession in 100 years as the initial wave of Covid-19 and the late entry into a strict lockdown caused a sudden halt in activity across the country. UK GDP plunged nearly 20% in the second quarter of 2020 and 9.4% for the year as a whole – the worst performance in the G7.
The economy has since grown at the fastest pace of the rich country group, partly due to the rebound from a bigger fall, and returned to pre-Covid levels in December. However, other G7 countries are well above their pre-pandemic levels, including the United States and France.
Inflation has hit its highest rate since 1992 in the fallout from Covid-19, with Russia’s invasion of Ukraine threatening to make the problem worse. Disrupted global supply chains, labor and material shortages and surging post-lockdown demand have led to a spike in the cost of living around the world. In the UK, the disruption to trade has been compounded by Brexit.
Inflation had fallen to near zero at the start of the pandemic as businesses struggled with evaporating demand. However, stimulus measures from central banks and governments have helped to cushion the blow and maintain purchasing power.
With the war in Ukraine now fueling a sharp rise in global energy prices, the Bank of England expects inflation to hit 8% this spring. He predicted the rate could peak at nearly 10% this year.
The UK government’s budget deficit – the gap between spending and revenue – hit a peacetime record of around £318billion in 2020-21 as tax revenues slumped and the State has pumped billions of pounds into emergency pandemic support, such as furloughs, business grants and loans. .
The national debt – the sum of each budget deficit – has reached around £2.3tn, or around 95% of GDP, the highest level since the early 1960s.
Borrowing has fallen sharply in 2021-22 as the economy recovers, to around £150bn, although it is expected to remain above pre-Covid levels every year until at least mid-2020. decade.
The use of public transport has been slow to recover from the pandemic amid increased work from home. The number of car journeys is close to pre-Covid levels, although the number of bus journeys remains at 80% and usage is lower in London.
A minority of Britons have been working from home during the pandemic, with rates peaking at around 48% in February 2021 – with more people in the capital working from home due to a higher proportion of office jobs than in small towns and villages. Figures show the London Underground is quieter on Mondays than later in the week as office staff embrace flexible working in a trend that may continue post-pandemic.
The lockdown has fueled an internet shopping boom as consumers stay away from the high street. While online sales have retreated as brick-and-mortar stores reopen, experts expect a permanent shift to higher rates of internet sales post-pandemic.
Online spending increased from around 19% of total retail sales in February 2020 to a peak of 37.8% during the January 2021 lockdown, before falling back to around 27% in January 2022.
This change has caused a wave of store closures, altering the landscape of British shopping streets. Online businesses have posted windfall profits – enriching their billionaire owners – while fueling rapid growth in warehouse and delivery jobs.
House prices have soared during the coronavirus pandemic, in an unusual trend in a recession. The average UK house price was £275,000 in December 2021, an increase of £27,000 on the previous year.
The government stamp duty holiday in England and Northern Ireland, launched by Sunak in the summer of 2020 amid fears of a housing market crash, has boosted demand.
Helped by savings accrued during the lockdown for wealthier households able to access the homeownership ladder, and employment levels remaining robust, homeowners looking to relocate for more space during the lockdown also fueled market outside urban centers.