A YEAR OF THE Rs: RESTRICTIONS, RECESSION & THE 'R' RATE
A year in review, a chance to look back on the events of the past twelve months. Highlighting the highs, learning from the lows. No one could have predicted how this year would play out. Here is a look through some of the key moments and trends for the UK economy and real estate market.
Going into 2020, UK economic growth was stagnant, with zero growth recorded in the final quarter of 2019. The forecasts largely reflected a similar picture in the first quarter of the year followed by a modest rebound thereafter. There was increased confidence and optimism that the global economy will avoid a recession in 2020. UK GDP was expected to register growth of 1.1%.
In January things seemed relatively normal. The UK had hopes that business and consumer confidence would lift after December’s decisive election result, which would lead to improving economic activity. Growth would also be supported by a reduction in Brexit uncertainty, a pickup in global activity and the Government’s announced spending measures.
During this period, some 5,300 miles away, several people started reporting mysterious cases of pneumonia. Little did we know that this would later be known as COVID-19 and halt activity globally. By February, cases worldwide had reached 85,000 as human-to-human transmission was becoming more prevalent.
Governments deployed large fiscal packages and Central Banks embarked on unprecedented monetary easing to support households and businesses. At this point the outlook remained highly uncertain. Schools, shops, restaurants were closed across the UK. Those that could work from home were urged to do so and public transport networks emptied. The London underground drastically reduced its capacity, running at a fifth of normal levels. The lockdown delivered a big hit to the economy. The UK economy witnessed its worst ever recession; GDP contracted by 20.4%, far worse than the 2.1% fall in Q4 2008 – the height of the Global Financial Crisis.
As we entered Spring, restrictions were eased. Our new normal now included face masks and social distancing. Businesses, restaurants all adapted to adhere to new measures.
However, the few weeks of optimism was short-lived, as the rate of infection (also known as the 'R' rate) began to creep up again. The second wave, described reassuringly as a 'worse case scenario', was becoming a reality. A second hit to the economy and the social lives of many was imminent. The UK government introduced further support measures, building on those already in place. Unfortunately this did not stop the number of redundancies reaching a record high as businesses struggled with restrictions. The hospitality and retail sectors were particularly badly hit by the lockdowns and restrictions, resulting in large numbers of workers losing their jobs.
In the previous recession the unemployment rate took seven years to return to its pre-crisis levels. Having said that we did experience rapid job creation once recovery in the labour market was underway. Any permanent impact on the labour market, structural unemployment, is known as economic scarring. The full scope of any long-term economic scarring will not be known for some time.
As we head towards the end of an eventful year a piece of positive news has been the progress in the development of an effective vaccine. Will the vaccine save the UK economy? An effective vaccine will reduce the likelihood of the need for further lockdowns. This in turn will help restore business and consumer confidence and renew growth (2021: 6.4%). Although there is still a lot of uncertainty surrounding vaccine efficacy, it is still a positive end to the year. Providing the much-needed boost as we look forward to the new year and hope for a relatively normal 2021.