British Economy Slumps But The Worst Is Yet To Come

Britain’s economy contracted significantly in March. According to Commerzbank expert Peter Dixon, this is just the beginning. Because in addition to a much more severe slump in GDP, the country is heading for steep deficits.

No other country in Europe is grappling with the coronavirus pandemic like the UK – around 231,000 cases, more than 33,000 deaths, more than any other European country. The consequences for the economy are likely to be dramatic because of the severity of the outbreak, the Bank of England recently warned.

Bank of England predicts the worst slump in 300 years

The central bank anticipates a 14 percent decline in the gross domestic product (GDP) for the year as a whole – the hardest slump in over 300 years. The steep minus is the result of an unprecedented slump of 25 percent in the second quarter, after a decrease of “only” three percent in the first quarter, the bank predicts.

Commerzbank economist expects considerable losses

The GDP decline in March recently gave the first taste of this. Data released on Wednesday showed that economic output in March fell 5.8 percent from the previous month. In the entire first quarter, this was minus 2.2 percent.

“The worst is probably still ahead of us,” warned the expert for Great Britain, Ireland, and the British Federal Reserve. “Since the lockdown did not begin until late March, its full economic impact will not be felt until April,” said Dixon.

According to Dixon, economic activity at the end of March should have been about 25 percent lower than in February. Had the economy not recovered since then, there would have been a further 23 percent decline in the second quarter. However, Dixon expects the minus to be somewhat smaller due to the easing.

The economist’s expectations show that the Bank of England’s horror forecast has not exaggerated, especially since the central bank’s assumption was that the lockdown would remain so strict until June.

Britain pays € 17 billion a month to maintain jobs

In addition to the decline in GDP, Dixon anticipates that the pandemic will drive up British unemployment and will ultimately cause a significantly higher budget deficit – for example, through the so-called “Coronavirus Job Retention Scheme” (CJRS), which translates as “Coronavirus workplace”. Conservation System ”means.

This program will be extended beyond the second quarter to October, Dixon said. “To reduce costs, the workers on leave will be able to work part-time from August, with employers having to pay part of their salaries,” said the economist. After all, that helps to push down the cost of the CJRS, which currently costs the UK £ 15 billion a month.

Nonetheless, this cannot stop the decline in jobs. According to Dixon, the country’s unemployment rate is expected to rise by a whopping three percentage points from 3.5 percent in March to 6.5 percent in April. For comparison: In April the unemployment rate in Germany was 5.8 percent.

Public debt should rise by a quarter

While the public is eyeing for quick economic recovery, the consequence may lead many small and medium businesses to take out loans in private institutions like Loose Lending (https://looselending.com/).  For these reasons, Dixon expects significant deficits in the UK budget: “In our baseline scenario, we currently expect the government deficit to increase to around £ 250 billion (12.6 percent of GDP) in the fiscal year 2020-21.” The Treasury The country even reports a loss of 337 billion (16 percent of GDP), according to media reports.