Voice of Commonwealth

UK economy bounces back, mountain to climb

Share

Given the UK’s position as the head of the Commonwealth and as the main trading partner of the block, the UK’s economy’s better- than-anticipated performance, despite the hardships brought about by the global pandemic, is of interest to all of us in the Commonwealth.

However, the recovery is not on beds of roses or on an easy path against unexpected odds and there is a mountain to climb before the UK returns to the pre-pandemic level.       

Brighter outlook

Gross domestic product reduced by 1.5% in the first quarter, according to the Office for National Statistics, a better than expected performance that was helped by a surge in activity in March as coronavirus restrictions were eased slightly.

The lifting of the remaining restrictions is anticipated to unleash a huge surge in growth this summer. However, multiple lockdowns and a trade shock caused by Brexit have left UK GDP 8.7%  relatively smaller than it was before the pandemic started, indicating that the country has a bigger mountain to climb than many other major economies.

Economic output in Italy, another country that was hard hit hard by the pandemic, is 6.9% lower than before the pandemic. The German and French economies recorded 4.9% and 4.4% smaller, respectively, albeit the United States is nearly back to pre-pandemic levels.

What is uncertain is how quickly the UK economy may rebound, as its hugely successful vaccination program continues and coronavirus restrictions are relaxed further.

“The burst of growth in March shows that the recovery has been gathering momentum more quickly than we had thought,” said Ruth Gregory, senior UK economist at Capital Economics. The economy may return to its February 2020 level even before the end of the year, she said.

Economists at ING said the strength of the recovery, by and large, depends on how quickly consumers spend savings they’ve accumulated during the pandemic and whether the government would continue to offer tax breaks to business.

Exports to the European Union keeps on to recover in March, almost reaching the level that immediately preceded a historic collapse following the Britain completed its exit from the EU on Jan. 1.

But, there is evidence that new border controls continue to affect trade adversely. Imports from Europe remained slow in the first quarter, the ONS said, and were exceeded by non-EU imports for the first time on record.

“There’s still a small chunk of firms still struggling with the changes,” said James Smith, an economist at ING. “The bottom line is that there will continue to be a slow-burning impact of new trade frictions on the UK economy, even if the immediate teething problems have passed.”

In addition to entering into bilateral and multilateral trade agreements, the UK will have to continue helping the businesses to return to their pre-pandemic levels, while ensuing the expansion of the economy and creation of gainful employments. Reviving and rejuvenating the Commonwealth as a trading block would not only be beneficial to the UK to expand its economy, but also help recovery of economies in the Commonwealth.

Read more

More News