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GBP Under Pressure with Major Economic Challenges for the UK



The UK government faces significant economic challenges as the lockdown is eased and some businesses start to reopen.  Figures from the Office for National Statistics (ONS) show that the UK economy shrank by 2 per cent in the first quarter of 2020, as activity plunged 5.8 per cent in March representing the sharpest fall in GDP since 2008.

The next quarter is likely to be even worse, given that the lockdown came into effect on 23 March effectively shutting down most business activity in the UK. The economic situation is further compounded by a budget deficit that could reach about £340 billion by the end of the year, according to leaks from the Treasury. This figure easily dwarfs the £55 billion deficit that was forecast in the March budget.  This probably explains why Prime Minister Boris Johnson desperately wants to get the UK economy going again, irrespective of whether the UK has done enough to contain the coronavirus pandemic that has put the UK in the unenviable position of the highest number of Covid-19 deaths in Europe. Boris Johnson failed to take the pandemic seriously by making sure that the UK was prepared with appropriate protective equipment for NHS and other front line workers, and the resources to carry out large-scale testing and tracing of the infection. The prime minister was also too slow to introduce a lockdown, and even when the lockdown came into effect, there were flaws like the absence of screening at airports as people continued to fly into the country from coronavirus hotspots. If these and other appropriate measures had been taken, then probably fewer lives would have been lost, and the country would have been in a better position to begin easing the lockdown restrictions in an orderly way, without the confusing and contradictory messages now coming from the government. Now the government will have to make tough decisions about how it is going to address the massive budget deficit. Key public services need to be protected, however, tax rises are almost inevitable.  The issue is whether any rises in taxation are going to be fair and progressive ensuring that corporations and wealthy individuals pay more. 

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