What happens to jobs, home and people's lives will depend a lot on how the government responds.
Rishi Sunak, the British Chancellor of the Exchequer, has warned that “our economy is going to take a significant hit”. Current forecasts suggest the economy could shrink by 13 percent in 2020. What that means is that the UK is expected to produce 13 percent fewer goods and services than it did last year.
Another way of looking at this is that British companies will do less business, so more jobs in those industries will be lost. The unemployment rate (which only counts people looking for work and not people like students or stay-at-home parents) is expected to double over the next three months, from 5 to 10 percent. While some economists think that the size of the economy isn't a good way to measure its health or wellbeing in general, pretty much everyone agrees that an unplanned recession like this will be bad for both.
The other thing that is going to change significantly is the government deficit. This is the gap between the amount of money the government ‘earns’ (from tax, mostly) and the amount it spends. Last March, the UK government had a surplus of £19 billion (i.e. it earnt more than it spent).
However, to combat coronavirus and the economic effects of lockdown, it has announced big spending plans, such as building new hospitals and subsidising the wages of furloughed workers. At the same time, the amount of tax it collects is going to go down, because closed-down businesses aren’t making any taxable profit and laid-off workers aren’t making any taxable income. This is predicted to result in a deficit of £273 billion in the 2020/21 financial year.
You may remember that a big government deficit was often cited as a concern following the 2008 recession. Indeed, the main reason given for the government’s austerity policies (cuts to public spending) over the last decade was to reduce the deficit. The argument was that unless Britain started “living within its means” then taxpayer money would be wasted on interest payments for debt rather than being spent on useful things like schools and hospitals.
Not everyone agrees with this idea, however. Some people think that governments can run big deficits without a problem (as they can't go bust) - and that spending lots when times are hard is a good way to create future growth.
The deficit in 2010, incidentally, was £103 billion. So lots of people are now wondering how the government will respond to a deficit that is almost three times bigger. More austerity? Less? Something completely different?
While it's difficult to predict at this stage, it's clear that the last round of austerity has shifted the public mood. Even before the pandemic and associated threat of recession, two-thirds of voters said that cuts had gone “too far”. Many economists and other experts have come out to criticise the last decade of austerity for making almost everybody poorer.
The Conservative Party won the 2019 election promising an extra £34 billion a year of public spending - something people are likely to increase their support for if coronavirus causes them to take a personal financial hit (which 71 percent of people think it will). It therefore looks likely that the government will receive more support if it responds to this recession by opening the spending taps rather than tightening them.
It’s easy to think you’ve got nothing to do with the economy – you can’t see it, feel it, or engage with it in any tangible way. But in fact the economy is just the result of how you live your life and how everyone around you lives theirs…