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The coronavirus crisis: the debate shifts towards the exit strategy

4th May 2020

Introduction

The Government’s “Stay At Home measures” (lockdown) were announced on 23 March, and this week (beginning 4 May) represents the seventh week of the lockdown. A second review of the measures is due on Thursday 7 May, when it can be expected there will be some relaxation of the measures, albeit modest ones. At the first review of the measures (16 April) Foreign Secretary Dominic Raab said five conditions needed to be met before the lockdown was eased. They were: making sure the NHS could cope; that there was a “sustained and consistent” fall in the daily death rate; there was reliable data showing the rate of infection was decreasing to “manageable levels”; ensuring the supply of tests and Personal Protective Equipment (PPE) could meet future demand; and, finally, being confident any adjustments would not risk a second peak.1 In his speech of 30 April, the Prime Minister said the UK was “past the peak” of the virus outbreak.2 He also said that he would set out a “comprehensive plan” for “restarting” the economy, reopening schools and helping people travel to work following the coronavirus lockdown, this week. The focus of the debate is shifting towards the exit strategy. More specifically, it has been reported that the government will be releasing a series of papers this week outlining its approach on “restarting” the economy, safely and gradually.3-4 These exit strategy position papers are expected to comprise a set of broad guidelines, which will not be too prescriptive as to be inflexible. Trade unions, large firms and business groups have been consulted on seven areas: outdoor work (including agriculture, construction and energy); non-food retail (the high street); transport and logistics; manufacturing (including food processing and engineering); indoor work (including offices, laboratories and call centres); work in the home (including plumbers, painters and decorators, and carers); and hospitality and leisure (including pubs, clubs, restaurants, cinemas and theatres). The current pandemic, and the government’s response, has affected both the supply and demand sides of the economy. Shutting workplaces and restricting movement have reduced the ability of

PERSPECTIVES

By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group

Ruth Lea

Economic Adviser

Arbuthnot Banking Group

ruthlea@arbuthnot.co.uk

07800 608 674

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firms to supply goods and services. The same measures have also undercut demand (if consumers are housebound their ability to spend is greatly reduced). Added to this, a combination of dramatically reduced incomes and heightened uncertainty about the future has added, and will add, to the drag on consumer spending and business investment. We are already seeing evidence for this. In analysing what may happen in future, however, there are two major questions to consider. Firstly, as the debate shifts towards the exit strategy, how/when will the lockdown end and how will the economy respond? Secondly, what will the longer-term effects be on the UK/global economy?

The exit strategy and the economic response…

Firstly, concerning the nature of the exit strategy, we can only speculate how/when it will be implemented. As already indicated, we should know more next week. It is, however, almost certain that it will be gradual and phased as the government seeks to avoid a “second spike” of infection and a possible re-lockdown. Speculation is rife as to which sectors will be “reopened” first. We will, however, have to wait on the government on these matters. How the economy responds to a lifting of restrictions will partly depend on whether the government’s assortment of support schemes have succeeded in protecting businesses, helping to maintain the viability of the supply side. There have been major criticisms of one of the flagship schemes, the Coronavirus Business Interruption Loan Scheme (CBILS), and the take-up so far has been modest.5-8 The Chancellor may yet amend it further, in the face of such criticisms. But, having said that, there is little doubt the support schemes are extensive (annex table 1) and, incidentally, expensive.9 It is, moreover, reasonable at this stage to assume that the totality of schemes is helping businesses and the Coronavirus Job Retention Scheme (CJRS), in particular, should mitigate the rise in unemployment. The ONS’s latest Business Impact of Coronavirus Survey (BICS) (to 19 April), suggested that, whilst nearly a quarter of respondents had temporarily paused trading, just 0.5% had permanently closed (discussed further below).10 This may regarded as encouraging, but it is still “early days” and we are some distance from knowing the eventual damage incurred by the supply side. As NIESR points out (see below) the most significant challenges to business could come when the lockdown is eased and the government’s supportive measures are withdrawn.11 Then many businesses could struggle to bear the operating costs of being open while demand and sales are reduced because of the (assumed) need to maintain social distancing. In those circumstances, NIESR argues, the government schemes would need to be adapted to prevent unnecessary business failures as the economy recovers. Assuming government support does prove fairly effective in shoring up businesses, much of the supply potential should be restored relatively quickly. Shuttered firms should re-open and furloughed people should return to work. Nevertheless, more businesses can be expected to close their doors permanently. Businesses in the especially vulnerable sectors (accommodation and food services, arts and recreation, transport and travel) could be disproportionately affected (see below for further discussion).12 But it is reasonable to assume there will not be a large permanent reduction in supply. Turning to the demand side, the picture is less straightforward. Demand should rebound as lockdowns are lifted and some of the restrictions on spending imposed by the shutdowns ease. But several factors are likely to prevent a swift recovery to pre-virus levels. The balance sheets of

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some households will be impaired by the crisis, unemployment will rise, uncertainty will persist, and confidence will remain fragile.13 Behaviours may change too. Even if shops, cinemas, restaurants, and theatres re-open, individuals may be reluctant to gather in public spaces, thus depressing demand for these services. Taking the supply and demand sides together, a central case scenario would be for the economy to recover fairly quickly after lockdown. But to expect it just to “bounce back”, making up all lost ground quite quickly, now seems unduly optimistic. NIESR’s assessment (assuming a progressive relaxation of stay-at-home measures) that GDP recovers some of the lost ground in 2020H2 and 2021 after falling sharply in 2020Q1 and 2020Q2, almost re-attaining its 2019Q4 level by 2021Q4, seems reasonable.14

…and the long-term effects

At this stage, any assessment of the long-term effects of coronavirus pandemic can only be part-speculative, but certain developments are becoming clearer. Firstly, Government borrowing is going to expand enormously this year, to pay for the support schemes as well as reflecting the poorer economic outlook. As reported recently, the OBR estimated that public sector net borrowing (PSNB) would increase by £218bn in FY2020 relative to their March Budget forecast (to reach £273bn or nearly 14% of GDP).15-16 Secondly, the crisis has changed the role of the state, though how permanently is impossible to say. Governments backstopped the banks in 2008. In this crisis, they have backstopped large tracts of the non-financial business sector too. In the process, governments have expanded the range of powers at their disposal. Finally, the fallout from the virus may intensify the pushback against globalisation and multilateralism that had been building before the outbreak began. Specifically, the disruption caused by the virus may cause firms to question the benefit of maintaining global supply chains and there may be moves towards import substitution (“reshoring”).

Update on the Government’s support measures…

Since the last Perspective, the Chancellor announced on 27 April a new Bounce Back Loans scheme, adding to the list of government business support schemes (see annex table 1).17-18 The loans will have a 100% government-backed guarantee for lenders.

…and the latest ONS business survey

The ONS’s latest Business Impact of Coronavirus Survey (BICS) related to the period 6-19 April (Wave 3), after the introduction of the Government’s “Stay At Home measures” (23 March).19 Around 5,159 businesses responded out of a sample size of 17,623. 1,222 (23.7%) reported they had temporarily closed or paused trading, while 3,912 (75.8%) were continuing trading. 24 (0.5%) had permanently ceased trading. 1 in 4 (24%) of surveyed businesses in the UK continuing to trade reported that their turnover had decreased by more than half the normal level. The BICS asked respondents for their experience of the government schemes at the point of completing their questionnaire, with responses collected up until 27 April (sic). Note the

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Coronavirus Job Retention Scheme (CJRS) went live on 20 April, but businesses could still indicate whether they had applied or received this scheme. Table 1 shows how rapidly businesses have applied to the available schemes.20 The CJRS was the most popular government scheme applied for, with 66% of all responding businesses. Table 1 also includes the government support they had received up until 27 April (sic). 42% of businesses said they had received support from the Deferring VAT Payments Scheme, the highest percentage. Table 1 Government schemes take-up (%): businesses continuing to trade, paused trading, to 27 April 2020

Applied Received

Continuing trading

Paused trading

Total Continuing trading

Paused trading

Total

Coronavirus Job Retention Scheme

61.0 82.2 66.0 17.9 20.7 18.6

Deferring VAT payments 52.6 66.9 56.0 39.8 49.3 42.1

Business rates holiday 17.9 57.9 27.4 11.5 42.4 18.8

HMRC Time To Pay (TTP) scheme

17.7 36.6 22.2 13.1 26.8 16.4

Government-funded small business grant or loan schemes

8.8 19.3 11.3 5.4 12.3 7.0

Accredited finance arrangements

7.8 17.3 10.1 1.6 2.6 1.8

Not applied 25.7 8.6 21.7 19.9 19.6 19.9

Source: ONS, “Coronavirus and the economic impacts on the UK”, 30 April 2020.

Some sectoral observations

As we have discussed in an earlier Perspective, the lockdown is affecting different parts of the economy in very different ways.21 The sections of the economy that are especially sensitive to the measures include “face-to-face” services. These include chunks of the retail sector that have been deemed “non-essential” (including garden centres); transport (within “transportation and storage”, with air transport especially affected); accommodation and food services; arts and recreation; and personal services including “hair and beauty” (within “other services”).2 Continuing with services, travel agents (classified in “administrative & support service activities”); and real estate activities (reflecting the locked-down housing market) are also especially vulnerable. Services that can continue to broadly function, though with some impairment, probably include information and communication; financial and insurance activities; and professional, scientific and technical activities. Services sectors dominated by the public sector (public administration and defence, education, and health and social work) should be relatively little affected, with health actually showing a pick-up in activity.

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Parts of the manufacturing sector have clearly also been hit by the closure of “non-essential” shops (textiles and wearing apparel, for example) and the reported fall in demand for “big-ticket” items, including motor vehicles (see the SMMT’s data for March below). Parts of the construction sector have ceased functioning. Suffice to say, the economic sectors that have been especially impaired by lockdown are, cumulatively, not trivial parts of the economy. Chart 1 shows the share of GDP of selected sections and selected divisions within those sections (see annex tables 2a and 2b for the full data). The retail division is included, despite the fact that food and other “essential” items are not in lockdown. The breakdown of the transport sector (2.2% of GDP) is interesting: land (1.6%), water (0.3%) and air (0.3%). NIESR (see below) have assumed in their latest forecasts that GDP is reduced by about 30%, all in all, when the lockdown is in operation (see below). This does not seem unreasonable. Chart 1 Vulnerable economic sections/divisions, share of GDP (%, 2019 weights)

Sources: (i) ONS, “GDP quarterly national accounts, 2019Q4”, 31 March 2019, click on “GDP output approach – low level aggregates”, select 2019 data: (ii) ONS, “UK SIC 2007”. See also annex tables 2a and 2b.

NIESR’s latest economic forecast

As we have already stated, economic forecasting under current circumstances is currently especially difficult. The OBR’s recent set of projections, its coronavirus scenario, was specifically referred to as a scenario. In this scenario, as noted already, the OBR estimated that public sector net borrowing (PSNB) would increase by £218bn in FY2020 relative to their March Budget forecast (to reach £273bn or nearly 14% of GDP), before falling back close to forecast in the medium term.22

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Caveats apart, the respected National Institute of Economic and Social Research (NIESR) has recently released its latest forecasts of the UK economy, which look as reasonable as any (see annex table 3).23-24 NIESR’s key points are:

The economic outlook is “extremely uncertain” and depends critically on the effectiveness of government policies to manage the economy while limiting the spread of Covid-19. The most significant challenges are likely to come when the lockdown is eased and the government’s supportive measures are withdrawn. Then many businesses could struggle to bear the operating costs of being open while demand and sales are reduced because of the need to maintain social distancing. In those circumstances, the government schemes will need to be adapted to prevent unnecessary business failures as the economy recovers.

They estimate that GDP is reduced by about 30% when the lockdown is in operation. With the lockdown assumed to be in place from around mid-March to mid-May, GDP falls by around 5% in 2020Q1 and 15% in 2020Q2. On the assumption of a progressive relaxation of stay-at-home measures, GDP then recovers some of the lost ground and almost re-attains its 2019Q4 level by 2021Q4, but there are significant downside risks. GDP is expected to fall by 7.2% (YOY) in 2020, followed by growth of 6.8% in 2021.

Concerning the labour market, the Coronavirus Job Retention Scheme (CJRS) is assumed to be effective in limiting the fall in employment in 2020 to around 1½mn. Unemployment rises to around 3mn (about 8½% of the labour force) in the year, falling back towards 2mn in 2021.

The government’s announced measures to limit the long-term economic effect of Covid-19 have a direct cost to the exchequer of about £75bn in their main-case scenario. Public Sector Net Borrowing (PSNB) is likely to rise above £200bn (around 10% of GDP) in FY2020.

UK data update

There have been a few indicators over the past week, all indicating a weakening economy. Firstly, the Bank of England reported that households repaid £3.8bn of consumer credit (net) in March, the largest net repayment since the series began.25 Within this, credit cards accounted for £2.4bn of net repayments and other loans and advances accounted for £1.5bn. The growth rate slipped to 3.7% (YOY), compared with February’s 5.8%. The Bank noted “...within this (total), the annual growth rate of credit card lending fell to -0.3%, the first negative annual growth since the series began. The annual growth rate of other loans and advances fell to 5.6%”. The Bank’s data on the mortgage market provided evidence of a decline in housing market activity in March. Mortgage approval statistics fell by over 20% in March. There was a broad based fall across the reasons for applying for a mortgage. Approvals for house purchase fell by 24% to 56,200, their lowest level since March 2013; and approvals for remortgage fell 20% to 42,600, the fewest since August 2016. ‘Other’ approvals, which includes for withdrawing equity, fell back 17%, to 12,000. Approvals for house purchase had been 73,700 in February. Net mortgage borrowing by households was, however, £4.8bn in March, compared with £4.3bn in February. The annual growth rate for mortgage borrowing ticked up to 3.6% (3.5% in February). Mortgage borrowing tends to lag approvals, however, so this strength is likely to reflect the relative strength in approvals in previous months. The seasonally adjusted IHS Markit/CIPS PMI fell to a record low of 32.6 in April, down from 47.8 in March, confirming the collapse in manufacturing indicated in the flash estimates.26-28 Markit

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said the public health emergency caused by the outbreak of COVID-19 caused substantial disruption across the UK manufacturing sector and its supply chains in April. Manufacturing production, new orders and employment all contracted at the fastest rates in the 28-year survey history, while vendor lead times lengthened to the greatest extent so far. The global pandemic also hit overseas demand, leading to a series-record drop in new export business. The fall in the Manufacturing PMI (which is a composite of five indices) was, however, softened by a comparatively modest reduction in stocks of purchases and the aforementioned record lengthening of vendor lead times (which has an inverse contribution to the PMI level). Survey data were collected between 7-27 April. Finally, the Society of Motor Manufacturers and Traders (SMMT) released car production data for March.29 The total number of vehicles produced fell 37.6% (YOY), as the coronavirus crisis caused UK car plants to close. Output for the domestic UK car market declined 36.8% (YOY), whilst exports fell 37.8% (YOY) as the pandemic forced showrooms to close around the world. By comparison, at the height of Brexit uncertainty in October 2019, car production fell just 3.8% (YOY).30

Worrying GDP data from the US and, especially, the Eurozone…

The US has released its first estimate of GDP for 2020Q1, which showed a 4.8% (QOQ, annualised; 1.2%, non-annualised) fall.31 (See chart 2.) The decline was driven by a 7.6% fall (QOQ, annualised) in consumer spending but investment also fell and inventories shrank. External trade weakened with exports down 8.7% (annualised) and imports down 15.3% (annualised), leading to a smaller trade deficit (which would underpin GDP). The GDP contraction is expected to be far sharper in 2020Q2, with projections around falls of 25-40% (QOQ, annualised). The latest US jobless claims (week-ended 25 April) were 3.84mn, to bring the rolling six-week total to 30.3mn. The rate of increase is, however, easing. Claims hit a record 6.87mn for the week of 28 March and have declined each week since then. April’s non-farm payrolls are due on 8 May 2020. Some commentators are expecting payrolls could show a decline of around 2.25mn in the month, with an unemployment rate of around 15.0%.32 Eurostat has also released its flash estimate for Eurozone and EU27 GDP for 2020Q1, which showed declines of 3.8% (QOQ) for the Eurozone and 3.5% (QOQ) for the EU27.33 As with the US, worse, much worse, is expected to come in 2020Q2. A complete country breakdown is not yet available but, separately, France’s GDP dropped 5.8% (QOQ), according to preliminary estimates from the country’s Office for National Statistics (INSEE), the biggest fall since records began in 1949.34 Meanwhile, Spain’s gross domestic output shrank 5.2% (QOQ), the largest fall since the series began in 1995, according to preliminary estimates from its Office for National Statistics (INE). Italy’s GDP fell by 4.7% (QOQ) in 2020Q1, following slippage of 0.3% (QOQ) in 2019Q4, constituting recession on the definition of two consecutive falls in GDP.35 German GDP data for 2020Q1 are not yet available, but the Federal Labour Agency reported that the unemployment rate rose to 5.8% in April, compared with 5.0% in March, despite the mitigating effects of Germany’s system of financial help to people put onto shorter working hours, known as Kurzarbeit.36 Separately, the German Government has warned that GDP was expected to shrink by a record 6.3% (YOY) in 2020 as the demand for exports plummeted and lockdown restrictions weighed on domestic consumption.37

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Chart 2 GDP, quarterly growth (%), selected economies, 2019Q4, 2020Q1

Source: www.tradingeconomics.com. Data for 2020Q1 for Germany and the UK, not available. China’s GDP fell 9.8% (QOQ), 6.8% (YOY) in 2020Q1.

…whilst the Fed and the ECB offer their latest commentaries

The policy-setting FOMC (Federal Open Market Committee) met last week (28-29 April), with the policy statement released on 29 April.38 In response to the corona virus pandemic, the statement said “…the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals”.39 Moreover, the FOMC “decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals”.40 The Governing Council of the ECB also met last week, making the following supportive decisions:41-

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The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively.

The conditions on the targeted longer-term refinancing operations (TLTRO III, launched March 2019), to provide financing to credit institutions, were further eased.

A new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) would be conducted to support liquidity conditions in the Eurozone financial system.

Since the end of March, purchases had been conducted under the new pandemic emergency purchase programme (PEPP). The Governing Council will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over, but in any case until the end of this year. Moreover, net purchases under the asset purchase programme (APP) will

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continue at a monthly pace of €20bn, together with the purchases under the additional €120bn temporary envelope until the end of the year.

Note the Bank of England’s Monetary Policy Committee (MPC) will meet next week, when updated economic forecasts are expected.

Addendum: the EU’s emergency and recovery policies

The Eurogroup (comprising the Eurozone’s finance ministers) agreed an emergency package for the EU (not all exclusively for the Eurozone) on 9 April 2020. The package amounted to about €540bn, and it comes on top of measures announced by national governments, which, although differing in size, consist of direct fiscal stimulus, liquidity and employment support and public guarantee schemes for bank loans. Moreover, the fund followed the effective suspension of the Stability and Growth Pact (SGP) by the European Commission (23 March) and is in tandem with the ECB’s huge asset purchasing programme.43 It was signed off by EU leaders on 23 April.44 The emergency package comprised:45

The unconditional use of the European Stability Mechanism (ESM). With up to €240bn of the ESM’s total €410bn assigned to fund health spending relating to Covid-19, countries will be able to receive loans of up to 2.0% of their GDP for emergency healthcare-related spending. The ESM provides financial assistance, in the form of loans, to Eurozone countries or as new capital to banks in difficulty.

The European Investment Bank (EIB) will create a guarantee fund worth €25bn, leveraging up to €200bn in financing to SMEs hit by the crisis.

Temporary support to the labour market, endorsing an initiative by the Commission aimed at underpinning short-time work schemes (SURE). The support would help governments finance jobless-insurance pay-outs for up to €100bn of loans at favourable rates.

In addition to the emergency measures, the EU is formulating a recovery programme. The Commission released its Roadmap for Recovery on 21 April.46-47 EU leaders have since agreed to set up a recovery fund, closely tied to the EU27’s seven-year budget (covering the years, 2021-27).48

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References 1. Ruth Lea, “The coronavirus crisis: economic costs mount up as the lockdown continues,

Arbuthnot Banking Group, 27 April 2020. 2. BBC, “Coronavirus: Boris Johnson says UK is past the peak of outbreak”, 30 April 2020. The PM

said “We have come through the peak, or rather we have come under what could have been a vast peak. As though we have been going through some huge Alpine tunnel, and we can now see the sunlight and the pasture ahead of us”.

3. BBC, “How the government plans to get the UK back to work”, 1 May 2020. 4. Daily Telegraph, “Ministers in crunch talks on getting people back to work”, 30 April 2020. 5. Daily Mail, “UK trails Europe in crisis loans”, 27 April 2020, reported that the TPA had said that

less money had been lent under CBILS than under equivalent schemes in Switzerland and Germany because application process was too complex.

6. Daily Telegraph, “Sunak loan scheme to get smallest firms back on feet”, 28 April 2020, reported that, under CBILS, just £3.4bn and 20,000 loans had been handed out so far.

7. Daily Telegraph, “Business loan scheme helped just 13%”, 29 April 2020, reported that the BCC’s latest business impact tracker found only 13% of members that had applied for CBILS had succeeded. The others were still outstanding or had failed.

8. CityAM, “Coronavirus small business loan lending tops £4.1bn but concerns remain over scheme”, 30 April 2020, reported that CBILS lending had topped £4.1bn, according to bank industry body UK Finance.

9. Daily Telegraph, “More to do on business funding”, 28 April 2020, reported the furlough scheme was expected to costs £40bn for every 3 months.

10. ONS, “Coronavirus and the economic impacts on the UK”, 30 April 2020. 11. NIESR, “Prospects Deeply Uncertain for the UK economy”, press release, 28 April 2020. 12. There is speculation that the domestic accommodation sector should pick up well after

lockdown (“staycations”), benefiting from people’s reluctance to travel overseas. 13. Daily Telegraph, “Lockdown success spells retail woes as one in 10 set to resume spending as

before”, 27 April 2020. A survey by Retail Economics found only 1 in 10 consumers was planning to resume spending and travelling as they did before (if restrictions eased off in early May).

14. NIESR, “Prospects Deeply Uncertain for the UK economy”, press release, 28 April 2020. 15. OBR, “Commentary on the OBR coronavirus reference scenario”, 14 April 2020. 16. Ruth Lea, “The coronavirus crisis: economic costs mount up as the lockdown continues,

Arbuthnot Banking Group, 27 April 2020, discussed the OBR’s work. 17. Daily Telegraph, “Sunak loan scheme to get smallest firms back on feet”, 28 April 2020,

reported another scheme (Bounce Back). 18. CityAM, “Rishi Sunak unveils 100 per cent state-backed ‘bounce back loans’ for small

businesses”, 27 April 2020. 19. ONS, “Coronavirus and the economic impacts on the UK”, 30 April 2020. 20. Accredited finance schemes include loans from accredited lenders under the Coronavirus

Business Interruption Loan Scheme (CBILS) and under the Coronavirus Large Business Interruption Loan Scheme (CLBILS).

21. Ruth Lea, “The coronavirus crisis: the economic costs mount up”, Arbuthnot Banking Group, 14 April 2020, discussed the UK industrial structure.

22. OBR, “Commentary on the OBR coronavirus reference scenario”, 14 April 2020. 23. NIESR, “Prospects Deeply Uncertain for the UK economy”, press release, 28 April 2020. 24. NIESR, “Prospects for the UK Economy”, 28 April 2020. 25. Bank of England, “Money and credit: March 2020”, 1 May 2020.

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26. Markit/CIPS, “Output, new orders and employment fall at record rates as COVID-19 emergency continues”, 1 May 2020.

27. Markit/CIPS flash UK composite PMI, “Record declines in UK manufacturing and service sector output as public health crisis continues”, 23 April 2020. The flash manufacturing output index was 16.6 in April (March, 43.9), whilst the flash manufacturing PMI was 32.9 in April (March, 47.8).

28. Ruth Lea, “The coronavirus crisis: economic costs mount up as the lockdown continues, Arbuthnot Banking Group, 27 April 2020, discussed the Markit flash indicators.

29. SMMT, “UK car production falls -37.6% in March as coronavirus halts automotive manufacturing”, 30 April 2020

30. CityAM, “SMMT: UK car production falls 38 per cent, 10 times worse than Brexit drops”, 30 April 2020.

31. Market-Watch, “GDP sinks 4.8% in the first quarter, biggest drop since 2008 and there is worse to come”, 29 April 2020.

32. CNBC, “US weekly jobless claims hit 3.84 million, topping 30 million over the last 6 weeks”, 30 April 2020.

33. Eurostat, “GDP down by 3.8% in the euro area and by 3.5% in the EU”, 30 April 2020. 34. FT, “Eurozone economy shrinks by fastest rate on record”, 30 April 2020. 35. Daily Telegraph, “EU heads for recession after record slump”, 1 May 2020. 36. Rappler, “German jobless total soars in April 2020 due to coronavirus”, 30 April 2020. 37. Rappler, “Germany faces ‘worst recession’ in post-war history”, 29 April 2020. 38. Federal Reserve, “Federal Reserve issues FOMC statement”, 29 April 2020. 39. Ruth Lea, “The coronavirus crisis: recession looks all but inevitable”, Arbuthnot Banking Group,

30 March 2020, covered the Fed’s main measures to that date. 40. Federal Reserve, “Federal Reserve issues FOMC statement”, 29 April 2020. It also stated that

“…to support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning”. In addition, “the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate”.

41. ECB, “Monetary policy decisions”, 30 April 2020. 42. Ruth Lea, “The coronavirus crisis: recession looks all but inevitable”, Arbuthnot Banking Group,

30 March 2020, covered the ECB’s main measures to that date. 43. Euronews, “Coronavirus: EU finance ministers agree on €500bn emergency fund”, 10 April

2020. 44. BBC, “Coronavirus: huge economic rescue plan agreed by EU leaders”, 23 April 2020. 45. Focus-Economics, “Euro Area: Eurogroup adopts rescue package against coronavirus crisis;

remains divided on post-crisis stimulus”, 30 April 2020. 46. European Commission, “A roadmap for recovery: towards a more resilient, sustainable and fair

Europe”, 21 April 2020. 47. Europe-active, “EU Commission’s Roadmap for Recovery: tackling the post Covid-19 economy”,

21 April 2020. 48. BBC, “Coronavirus: huge economic rescue plan agreed by EU leaders”, 23 April 2020.

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Annex

Table 1 Government support measures for business

Measures

Coronavirus Job Retention Scheme (CJRS)

Under the CJRS, employers can claim for 80% of the employee’s wages (plus any employer National Insurance and pension contributions) if employer has to put employees on furlough because of coronavirus. The upper limit of claim is £2,500 per month. The CJRS was announced on 20 March. It was amended on 15 April (the eligibility date was extended to those employed on 19 March 2020, initially for those employed on 28 February); further amended on 17 April (JRS will be open until the end of June, instead of the initial end of May). It went live on 20 April.

Statutory Sick Pay Statutory Sick Pay relief package for small and medium sized businesses (SMEs). The Coronavirus Statutory Sick Pay Rebate Scheme (CSSPRS) will repay employers the current rate of SSP that they pay to current or former employees for periods of sickness starting on or after 13 March 2020.

Paying tax:

Deferral of VAT payments due to coronavirus

Temporary changes to the VAT payments due between 20 March 2020 and 30 June 2020 to help businesses manage their cash flow.

Self-Assessment tax bill

Because of coronavirus, can delay making second payment on account. If the self-employed choose to delay, will have until 31 January 2021 to pay it.

Business rates relief

Business rates relief, announced on 17 March. Businesses in the retail, hospitality and leisure sectors in England will not have to pay business rates for 2020/21 tax year. Eligibility, if property is a: shop; restaurant, café, bar or pub; cinema or live music venue; assembly or leisure property (for example, a sports club, a gym or a spa); hospitality property (for example, a hotel, a guest-house or self-catering accommodation). Nurseries in England will also not have to pay business rates for 2020/21 tax year.

Business support grant funds:

Small Business Grants Fund (SBGF)

Grant funding for all business in receipt of small business rate relief or rural rate relief.

Retail, Hospitality and Leisure Grant Fund (RHLGF)

Grant funding for retail, hospitality and leisure businesses, with property with a rateable value £15-51,000.

Support for the self-employed

Self-Employment Income Support Scheme (SEISS), announced 26 March 2020. Scheme allows self-employed to claim a taxable grant of 80% of average monthly trading profits, paid out in a single instalment covering 3 months, and capped at £7,500 altogether. This is a temporary scheme, but it may be extended.

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Support for SMEs:

Coronavirus Business Interruption Loan Scheme (CBILS)

CBILS offers Government guaranteed loans of up to £5mn for SMEs (annual turnover of up to £45mn) through the British Business Bank. The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months. CBILS went live on 23 March 2020. CBILS was announced in Budget (11 March), extended on 17 March (£330bn of support packages for the economy was mentioned), amended significantly on 2-3 April, and further amended on 27 April (Bounce Back Loans).

Future Fund The Coronavirus Future Fund, announced 20 April, will be delivered in partnership with the British Business Bank. The Future Fund will provide government loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equal match funding from private investors. The £500mn fund will, therefore, be divided evenly between the Treasury and private investors. The scheme will open in May and run until the end of September.

Note that on 20 April, the Chancellor announced new £1.25bn coronavirus package to protect firms driving innovation in UK, comprising:

£500mn investment fund - the Future Fund (see above).

SMEs focusing on R&D will also benefit from £750mn of grants and loans. It will be available through Innovate UK’s grants and loan scheme. Innovate UK, the national innovation agency, will accelerate up to £200mn of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis. An extra £550mn will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. The first payments will be made by mid-May.

Source: HM Government, “Billion pound support package for innovative firms hit by coronavirus”, 20 April 2020.

Bounce Back Loan

For SMEs, loans of up to £50,000 (announced on 27 April). The government will guarantee 100% of the loan and there will not be any fees or interest to pay for the first 12 months. The scheme will be delivered through a network of accredited lenders. The scheme will be launched on 4 May 2020.

Support for large businesses:

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

CLBILS (announced 16 April). Viable businesses with turnover of more than £45mn per year can apply for up to £25mn of finance. Firms with a turnover of more than £250mn can apply for up to £50mn of finance. The scheme is available through a series of accredited lenders, which are listed on the British Business Bank website. The government provides lenders with an 80% guarantee on individual loans. The scheme went live on 20 April.

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COVID-19 Corporate Financing Facility (CCFF)

The CCFF (announced 17 March), to provide funding to “investment-grade businesses which were making a material contribution to the UK economy”. Under CCFF, the Bank of England will buy short-term debt from large companies. The scheme is delivered through commercial lenders, backed by the Bank of England. 

ALSO HMRC Time To Pay Scheme (TTP). TTP arrangements are structured payment plans for debt repayment over an agreed time period. HMRC does not give these lightly but in the light of the Coronavirus situation they will be more permissive than before.

Sources include: (i) HM Government, “Financial support for businesses during coronavirus (COVID-19)”, as of 3 May 2020; (ii) British Business Bank (BBB) website. Table 2a Standard Industrial Classification (SIC): sections A-F, selected divisions

SECTIONS SELECTED DIVISIONS

Sections GDP weights, per 100

Selected divisions GDP weights, per 100

A Agriculture, forestry & fisheries (1-3)

0.7

PRODUCTION (B-E): [19.7]

B Mining & quarrying (5-9) 0.6

C Manufacturing (10-33) 10.2 Food, beverages, tobacco (10-12)

1.6

… … Textiles et al (13-19) 1.2

… … Chemicals, pharmaceuticals (20-21)

1.4

… … Rubber, base metals et al (22-25)

1.9

… … Machinery (26-28) 1.7

… … Motor vehicles et al (29)

0.9

… … Other transport (30) 0.6

… … Other manufacturing (31-33)

0.9

D Electricity, gas, steam & air conditioning supply (35)

1.5

E Water supply, sewerage, waste management et al activities (36-39)

1.3

F Construction (41-43) 6.1

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Table 2b Standard Industrial Classification (SIC): sections G-U, selected divisions

SECTIONS SELECTED DIVISIONS

Sections GDP weights, per 100

Selected divisions GDP weights, per 100

SERVICES (G-U): [79.6]

G Wholesale & retail trade, repair of motor vehicles & motorcycles (45-47)

10.5 Motor vehicles (45) 1.7

… … Wholesale (46) 3.5

… … Retail (47) 5.3

H Transportation & storage (49-53)

4.1 Land transport (49) 1.6

… … Water transport (50)

0.3

… … Air transport (51) 0.3

… … Warehousing (52) 1.3

… … Postal/courier (53) 0.6

I Accommodation & food services activities (55-56)

2.8 Accommodation (55)

0.8

… … Food services (56) 2.0

J Information & communication (58-63)

6.6 Publishing, broadcasting (58-60)

1.8

… … Telecomms, IT (61-63)

4.8

K Financial & insurance activities (64-66)

7.2

L Real estate activities (68) 14.0 Real estate exc. imputed rent

4.2

… … Imputed rent (68.2IMP)

9.8

M Professional, scientific & technical activities (69-75), including architectural, veterinary, engineering

7.6

N Administrative & support service activities (77-82)

5.1 Rental & leasing (77)

1.1

… … Employment (78) 1.5

… … Travel agency (79) 0.6

… … Security, office admin support et al (80-82)

1.9

O Public administration, social security, defence (84)

4.9

P Education (85) 5.8

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Q Human health & social work (86-88)

7.5 Human health (86) 5.1

… … Care, social work (87-88)

2.4

R Arts, entertainment & recreation (90-93)

1.6 Arts & cultural (90-91)

0.5

… … Gambling et al (92) 0.4

… … Sports, recreational (93)

0.7

S Other services (94-96) 1.7 Membership orgs, repairs (94-95)

0.6

… … Other personal services (dry-cleaners, hair & beauty et al) (96)

1.1

T Activities of households as employers (97-98)

0.3

U Extraterritorial organisations & bodies (99), does not contribute to GDP

…

Sources: (i) ONS, “GDP quarterly national accounts, 2019Q4”, 31 March 2019, click on “GDP output approach – low level aggregates”, select 2019 data: (ii) ONS, “UK SIC 2007”. A-U are sections; 1-99 are divisions. The ONS quotes GDP weights as per 1,000. Table 3 NIESR’s latest forecast, summary

GDP (%) CPI (%), Q4/Q4

ILO unemployment rate (%), Q4/Q4

External balance (% GDP)

PSNB (% GDP), financial years

2019 1.4 1.5 3.8 -3.8 2.6

2020 -7.2 1.7 10.5 -0.6 10.1

2021 6.8 0.5 5.8 -2.5 4.6

Source: NIESR, “Prospects for the UK Economy”, 28 April 2020.