UK economic output is set to constrict by 31%

The Centre for Economics and Business Research (CEBR) has analysed the daily economic impact of the UK’s lockdown by sector.

As of April 2020 the UK locked has resulted in overall economic output being reduced by almost a third (31 per cent). This is broadly in line with data from the French National Institute of Statistics and Economic Studies (INSEE), which found that French economic activity is approximately 35% lower due to their own nationwide lockdown.

Global GDP is forecast to fall by at least 4.0% this year – albeit with a significant margin of error. If this is correct, the fall will be more than twice as large as post-financial crisis in 2009 and will be the largest non-wartime single year drop in GDP since 1931.

The figure for Britain varies between sectors with manufacturing sector poised to see the highest fall in output in absolute terms, despite the fact that most of the government relief schemes are directed towards the service sector. The combined loss of economic output across all sectors is around £2.4bn a day.

Workers producing goods and services deemed non-essential cannot do their work remotely, whilst export demand and, in some cases, domestic demand, have fallen sharply. The estimated to cost the economy is more than £500m per day as production falls by 69%.
The accommodation and food services sector, non-food retail and construction sector are also expected to be disproportionately impacted. Here, the CEBR estimates GVA per day falls of £172m (79% of pre-crisis levels), £156m (55%) and £237m (50%) respectively.

For non-food retail sales, there is likely to be some substitution to online sales, although not nearly enough to outweigh the closure of physical stores. The horticultural industry, for example, is already in danger of being decimated as the lockdown occurs at a time of year when this sector makes almost its entire profit. There is a massive knock-on effect for garden centres, although some have been able to keep some sales going online and others have been able to keep a limited food or pet products offering going in store. For gift manufacturers and retailers this is one of the biggest challenges they will ever have faced and retailer-supplier relationships are being pushed to their absolute limit in many cases, or even beyond that point.

In relative terms, the services sector is likely to be less severely impacted, due to a greater ability to work remotely. Had this crisis occurred at a time when remote working was less feasible, the loss of economic activity would likely have been significantly higher. However, worker sickness and reduced business confidence is still expected to have a significant impact.
A few sectors are likely to contribute more to the economy due to the Corona-driven lockdown, including food and drink retail, where the CEBR forecasts trade to be up 22%. This is due to both stockpiling and the temporary closure of restaurants and cafes causing more household consumption.

These impacts only consider the fall in output under the current level of restriction, which is scheduled to run until at least April 12th. However, evidence from China suggests that it won’t be easy to immediately revert to pre-crisis levels of production, as businesses will continue to be constrained by strict public health measures to prevent a second outbreak.

CEBR founder and Deputy Chairman Douglas McWilliams, said: “Many of the government measures do little to help capital intensive sectors like manufacturing, which benefits relatively less from furloughing employees and is essentially excluded from rate relief. It is likely therefore that Chancellor Rushi Sunak will need to look again at how to help this sector to prevent fundamentally viable firms from going under’.

The results were compiled by a Cebr economics team led by Daryn Park and Owen Good, who considered the economic impact of the lockdown through the 105 major industries of the economy, using the UK’s national accounting framework. The results mirror almost precisely the results of a previous CEBR study into the specific impact of the lockdown to the London economy.