Expert opinion- Coronavirus: How is the economy being affected and how will we recover?

Dr Rana said: “So far it has been extremely difficult for SMEs to access the Covid-19 Business Interruption Loan, which involves the Government covering interest and charges for the first year and backing up 80% of the loan. High-street banks have been, instead, directing SMEs to more expensive products and requiring personal guarantees and interest rates up to 30%.

“Additionally, the rescue emergency packages do not seem to be enough to stop permanent closures and layoffs, particularly within those industries that have been impacted more harshly by the lockdown (i.e. leisure, retail and hospitality). Despite the ‘Coronavirus Job Retention Scheme’ and the ‘Self-Employed Income’ support scheme, in fact, many people will still have to rely on social security.

“According to the IFS, those who will suffer the most will be the young, low-paid and female workers since they are most likely to work within those sectors. Further adequate and timely interventions should take this into consideration to attenuate the negative impact in an economy that is already significantly unequal.

“As urged by the OECD, government’s first priority should now be to intensify its effort in containing the epidemic and to take part in a more internationally coordinated response to the outbreak so that lasting economic ‘normality ‘ can be restored .  As the economy returns to work, we can expect measures to encourage consumer spending such as VAT cut recommended by CEBR, as well as measures to encourage business investment.  The MPC of the Bank of England is ready to respond further to support the economy, but with interest rates at an historical low of 0.1%, the bank will need to further expand its quantitative easing programme. 

“Further government action we might see for workers is a minimum income guarantee for those who are currently not covered by the existing safety nets; for firms we might see sector-specific bailouts.”