by Jonathan Eida
Encouraging signs surrounding the UK’s economic recovery in the wake of the pandemic have emerged from the Office for National Statistics today. But these positive upticks in our economy come with a caveat. If we are to maintain our upwards trajectory and secure a healthy economic future, we must ensure we don’t fall foul of the economic pitfalls that are lying in wait.
Coronavirus and the subsequent lockdown policy implemented by the government has, in no uncertain terms, left the UK economy in pieces. This latest set of statistics helps gauge the ramifications of these policies and the path our economy is currently charting.
The primary figure which gives reason to hope that we are on our way to recovery was the strong resurgence in GDP in the second quarter of this year, following the reeling in of the government’s restrictions. This saw an increase of 4.8 per cent in real GDP in the first quarter of 2021-22, compared to the negative GDP growth we saw in the final quarter of 2020-21. Hence, there is optimism surrounding our economic prospects. It should be noted, however, that we are still 4.4 per cent below pre-pandemic levels.
One of the hardest-hit industries during the pandemic, the hospitality industry, saw a dramatic increase in output with the industry experiencing an 87.8 per cent increase in real GDP in the second quarter. This can only be a positive note for those who have been so hampered by government regulations over the past year.
This is a short term economic bounce back, but the long term fiscal costs of covid will eventually have to be paid for.
With the deficit reaching over £300 billion (or the equivalent to 14.3% of GDP, a new peacetime record), and debt having risen by 20.7 per cent points of GDP (higher than the EU average), there is much still to be concerned about despite the latest statistics. These issues, as well as maintaining economic growth in the future, all need addressing.
The first step must be to provide businesses with the room to grow by creating favourable market conditions. Growth means jobs, prosperity, tax revenue and all the other things post-pandemic Britain will need. Cutting taxes is the optimum way to stimulate growth. Businesses have, over the past year, been kept in a chokehold by the restrictions. Many firms have and will continue to struggle as a result. Tax cuts will afford businesses the flexibility to make decisions which will ensure their survival and further the UK’s economic prospects for the future.
Another requirement must be to end the furlough scheme. Asides from further burdening the taxpayer, to the tune of up to £18 billion if the scheme is extended, the furlough scheme discourages workers from returning to work. In order to complete the recovery, a full workforce must be available and active as businesses will require staff in order to meet the demands of a growing economy. Failing to do so will place the economy in an artificial stagnation. Locking us into lockdown economics in this way is the last thing we need.
So while there is reason to be optimistic about the news of a recovering economy, bumper growth is needed to tackle the colossal cost of covid. We are very much not out of the woods.