Society and communities
Researching economic recovery after the virus
The unprecedented economic shock of Covid-19 is plain to see. But it is also clear that the economic impacts of Covid-19 will be felt in profoundly uneven ways across the UK – by gender, economic sector and region, for example. Why is this, what might the economy look like after the virus, and how might research respond?
The lockdown brought in under Covid-19 to protect lives and the NHS has led to vast parts of the economy coming to an abrupt halt. Activities in the hospitality and leisure sectors that have social interaction at their heart, such as cafes, bars, gyms, theatres and museums, have been particularly badly hit. Initial estimates from the Office for Budget Responsibility suggest that output in accommodation and food services could decline by 85%.
In terms of employment, whilst claims for Universal Credit have grown significantly, this situation could have been much worse without the furloughing of close to a quarter of employees in Britain under the government’s coronavirus job retention scheme (CJRS) since its launch on 20 April. Under the scheme, 80% of the wages of furloughed workers are paid by the government up to a maximum of £2,500 per month. Meanwhile, the Bank of England has estimated that output in the first half of 2020 could decrease by close to 30%, resulting in the largest recession for 300 years.
Early evidence shows how behind these national headline figures lie stark differences in terms of the economic impact of Covid-19. For example, KPMG forecasts that the West Midlands, the East of England and the East Midlands will be the most impacted regions with each of these regional economies forecast to contract by around 10%. Meanwhile, the same forecast suggests that London will be the least impacted region with an equivalent figure of 7%. These differences can be explained by the different makeup of regional economies, with those reliant on manufacturing being particularly badly hit.
However, there are also important differences within regions. For example, places like Crawley in Surrey, Luton in Hertfordshire and Derby are likely to be vulnerable in terms of employment because of their reliance on the aviation and automotive sectors. And towns and cities that rely on spending from tourism and/or higher education students, such as Oxford, York, Nottingham. Sheffield and Bristol, are already recording significant decreases in spending.
Furthermore, different groups in society are also affected by the economic impacts of the lockdown in different ways. For example, the Institute for Fiscal Studies reports that young people, women and those in low paid work are most exposed to the economic impacts of the pandemic. This stems, at least in part, from these groups being more likely to be employed in sectors that have shutdown significantly from the pandemic as compared to other groups in society.
"Policymakers face significant immediate and longer term challenges in developing responses that support economic recovery across the UK under conditions of continued uncertainty."
As the pandemic progresses, any changes to restrictions clearly need to prioritise the protection of public health. In this respect, it is becoming clearer that for the economy, ‘after the virus’ will not mean a return to pre-Covid business as usual. Rather, we need to plan for an economic recovery that takes seriously the lasting impact of coronavirus on the size, shape and focus of the UK economy.
Central to these plans needs to be a concern for the profoundly uneven ways in which different places and communities will experience the recovery. Take the growing use of online ordering and delivery during the lockdown for example. The lockdown has led to significant growth for online retailers. For example, Amazon’s share price reached record highs in the middle of April. However, concerns have been raised about the working conditions of its workers in fulfilling the growth of orders in warehouses that need to abide by social distancing regulations. Meanwhile, the virus has accelerated the move to digital payments. Concerns about the spread of infection on coins and bank notes has led to reports that cash usage declined by close to 50% in the early stages of the lock down and the limit for contactless payments in stores was increased to £45 in the UK in March. However, this raises important questions for the 1.23 million people in the UK who are estimated not to have access to a bank account.
Furthermore, sectors such as manufacturing and construction, where only limited work can be undertaken remotely, are not evenly distributed across the UK. This means that rates of homeworking are likely to vary significantly by place. As a result, some regions, towns and cities, particularly those in the Midlands and the North, will be adapting to socially distanced workplaces where workers face potentially greater personal risks of contracting the virus, alongside the challenges of getting to work on reduced public transport networks, earlier than other places.
These examples show that policymakers face significant immediate and longer term challenges in developing responses that support economic recovery across the UK under conditions of continued uncertainty. In the short term, this work needs to focus on how the emergency economic support measures brought in to support the economy at the start of the pandemic can be gradually withdrawn in order to restart the economy. This will involve political choices about which sectors, and by extension places, are prioritised, what levels of risk workers are asked to shoulder as they return to their workplaces and, crucially, how and at what pace state support for jobs through furloughing is withdrawn.
In the longer term, a number of challenges emerge in relation to the uneven economic impact of the pandemic. For example, what are the implications of a more digitally mediated economy for both consumers and producers? How might regions that are focused on a sector facing significant decline or fundamental transformation, such as automotive, be supported in their economic recovery? And what will our towns and cities look like if remote working increasingly becomes the norm? Research into these questions is essential if the profoundly uneven economic impacts of Covid-19 are to be addressed in national and local policymaking after the virus.
Sarah Hall is a Professor of Economic Geography in the School of Geography.