Walk through the City of London, and know what it feels like to be the only person alive. There is no traffic. Gleaming steel and glass skyscrapers are deserted. The streets from Farringdon to Billingsgate are so quiet, you can hear birds chirping. The centre of the UK’s economy, once crammed with over half a million people a day churning out around £69 billion in revenue in 2018 alone, has become a ghost town.
Life as we know it ended in the space of 12 weeks, as the coronavirus ripped through borders, infecting millions of people and killing tens of thousands. In the grip of a lockdown, our economy is teetering on the brink of complete collapse, solely propped up by government funds. We are heading towards the deepest recession in living memory.
Chancellor Rishi Sunak’s government bailout aimed to stop larger businesses and major employers from haemorrhaging workers and suffering from financial collapse. But that quick response might only be a partial victory: one in four of the businesses queuing up for a government bailout still plan to make workers redundant, forcing them to sign up to get up to £408.89 a month through universal credit. And things will get worse before they get better. Last week, chief medical officer Chris Whitty admitted that some form of lockdown could be imposed until at least the end of this year. There are no quick fixes.
Countries that represent over 50 per cent of the world’s global GDP are closed for business. Economists looking for historical comparisons mention the 1929 stock crash, the 1974 economic crisis or the 2008 recession. But they admit that these all fall short of the toll that this pandemic could have.
The UK economy never saw coronavirus coming. As the virus spread across China in December and January, the majority of UK businesses were preoccupied with something else: Brexit. The majority of multinationals were weighing up whether to continue running their operations from the UK, and how the Brexit negotiations would impact their supply chains and growth ambitions. Major cities were predicted to lose eight to ten per cent of their output by 2030, or experience growth of four per cent, depending on the kind of deal that was negotiated with the European Union.
Within weeks, the coronavirus crisis had made toilet paper into a coveted commodity. Farmers tossed out thousands of gallons of milk as demand from coffee shops and restaurants vanished. Global supply chains collapsed. Manufacturing PMI fell to 32.9 in April 2020, the lowest number since records began. Video conferencing company Zoom emerged from almost complete obscurity to hit 200 million users in March as corporations, schools and even the House of Commons started working remotely.
When lockdown ends, the high street will be decimated, and household names will have vanished. In the first few weeks of the pandemic, companies already on the brink of administration were pushed over the edge, including department store Debenhams, homeware and fashion chain Laura Ashley, airline Flybe, rent-to-own giant BrightHouse and restaurant chain Carluccio’s. But the bigger picture shows they are not alone. A chunk of Britain’s business landscape may have already been permanently erased, as some 21,000 more UK businesses collapsed in March alone than the same month a year ago, according to data gathered by the Enterprise Research Centre, a group of university researchers.
The exit path from this catastrophe will be precarious. Over the next 12 months, projections for the economy look like one of three letters: V (a swift recovery), U (a dip, followed by flat growth, then recovery) or L (the rather ominous dip, flat growth and no foreseeable recovery).
Mark Hart, deputy director of the Enterprise Research Centre, didn’t think the more optimistic reports that the UK would experience a sharp recovery made sense. He says the economy is “probably in recession as we speak” if the predictions from the Office for Budget Responsibility, which say the economy will shrink by 35 per cent and unemployment could hit ten per cent, are correct. And that’s without factoring in prolonged lockdown measures.
He conducted research that suggests the economy is facing a “pincer movement” of higher business closures and a lack of new businesses taking their place. “In that context, rather than seeing a V-shaped rebound as some economists have predicted, we could instead see an L-shape dragged down by a net loss of companies over a long period,” he says. “The insolvencies are stacking up. And I believe the private sector is going to lose a few million jobs between now and autumn.”
Companies that rely on consumer spend will be hit the hardest. Even in the most optimistic scenario of lockdown ending in June, people are not going to rush to spend money in shops or on leisure activities. And pubs and restaurants, at the bottom of the government’s priority list, may not reopen until next year — if they can survive that long.
The FTSE 100, which marked its worst quarter since 1987 in March, started to show positive signs of recovery in recent weeks. But it could take the UK economy three years to fully recover from the fallout of the coronavirus pandemic, according to a new report. The EY Item Club forecast that almost half of consumer spend in 2020 is at risk of being delayed or lost completely, that GDP would drop by 6.8 per cent this year, and that it would take until 2023 for the economy to return to the level reached at the end of last year.
Hart believes that if the UK does not reopen by June, we will be in “serious bother”. Not just because companies have three to six months’ cash reserves and will not survive a slow-restart to the economy, but because the government can’t afford it. “The furlough scheme has been brilliant, it has given businesses a few extra weeks, but we can’t nationalise the private sector forever,” he says. “We have effectively nationalised 1.5 million enterprises and it’s got to stop.”
Coronavirus has been described as a “stress test” for companies in the UK. Thanks to the government financial support, many of the companies that would have otherwise folded have been handed a lifeline. “They’re being kept alive because it’s very hard to discriminate at this moment,” says Christopher Rauh, a lecturer in the faculty of economics at the University. “They had to throw a lifeline to everyone.” This bad debt will come back to haunt us, he says. “These things are not being discussed because right now, it’s about survival.”
Innovation and adaptability will help companies survive this crisis. But this could be bad news for workers that were put on the bench as soon as the crisis hit. The longer the lockdown lasts, the bigger chance that employers will decide that they were surplus to requirements. Rauh’s research into how labour will be impacted by the coronavirus spells out a grim message to young and vulnerable workers. This downturn is highly likely to increase inequality across the income distribution, between young and old, and between those on insecure and secure contracts. He urges the government to stop this shock from having permanent effects on the employment progression of the younger generation and the less-economically advantaged.
By this time next year, we will know if the government has listened. Companies will be walking, not running, their way to recovery. They will be jittery about their bottom lines, dividends and growth prospects, and will be reluctant to invest. “There are so many uncertainties about the global economic climate. Even tomorrow if the economy opens up again, we might have to lock down again,” says Rauh. “We don’t know how long it’s going to last. Firms are not going to want to commit to long-term relationships with workers. If they have desperate needs, a lot of them will rely on temporary workers.”
This means that those who swelled the queue for universal credit to one million people last month will be in a difficult position to find another permanent job. Those that are lucky enough to still be employed will find themselves less likely to earn a raise, and will have trouble finding another job, Rauh says. People will stay longer in jobs they don’t like, will save more and spend less. “After any crisis, people tend to be more cautious. Before, I guess a lot of people, especially the young, would go from paycheque to paycheque every month. This [a crisis] can impact people’s willingness to go out and splash money.”
And yes, it is likely that the majority of office workers from major cities in the UK will be working from home in a year’s time if companies can’t find a way to corona-proof their offices and no vaccine is forthcoming.
In 12 months’ time, the global supply chains that retailers, manufacturers and tech behemoths relied on will be recast, speeding up the shift that started with Brexit and the US-China trade war. In the meantime, many businesses have put on a brave face while they scramble to perform damage control. There is a reason why companies have flocked to do social good during the pandemic: Alibaba founder Jack Ma distributing coronavirus masks, Dyson announcing plans to help the government make ventilators (which subsequently fell through), or Amazon donating $5 million to local businesses near its Seattle headquarters. All have done a good deed, but the publicity and consumer goodwill could pay dividends in the long run.
Companies that are considered to have behaved despicably during this crisis will face a consumer backlash like no other, says Hart. He also believes that the government will want to implement “some form of austerity”, but will be strong-armed into providing more budget to the NHS. “The country has seen who the key workers are in our care homes and everybody else on the front line.” he adds. “They won’t allow cuts of any description.”
Natasha Bernal is WIRED’s business editor. She tweets from @TashaBernal
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