Accountant Southend

How Did Covid-19 Affect the UK Economy?

Covid-19 was an unprecedented pandemic that affected the whole world. From being isolated in our homes, to being asked to work from home, our day to day lives changed on a large scale but the economy arguably suffered the most. ARB is here to explain how Covid-19 affected the UK economy as well as what the long-term impact of Covid is expected to be on the economy. 

So, how did Covid-19 affect the UK economy? UK GDP dropped by 9.7%, meaning that the economy in the UK has become weaker as a result of Covid-19. Inflation has increased due to reduced production and higher demand for particular products, causing a rise in prices. The UK Government has also incurred a national debt of £79 billion due to factors such as the furlough scheme. 

Keep reading to find out more about how Covid-19 impacted businesses throughout the UK. 

Page Jumps

What is the Impact of Covid-19 on the UK Economy?

Covid-19 had a catastrophic impact on people’s day-to-day lives due to the way it affected health, and as a result of the restrictions that were placed on society to reduce how quickly it would spread. However, Covid-19 also had a devastating effect on the UK economy which will not recover overnight. Below we have detailed the main aspects of the economy which have been impacted as a result Covid-19. 

Decrease in GDP

In 2020, the rate of GDP dropped by 9.7% which is the steepest drop since records began in 1948. Although this is currently recovering and is now at a rate that is 1.5% above pre-coronavirus conditions, it has taken a long time to recover. GDP is calculated using the total value of goods and services, the value of societies’ income, and total expenditure. Therefore, with the impact of Covid-19 bringing a lot of jobs to a halt, people’s income and the products we produce as a country were reduced. As a result, the GDP of our country saw a huge decline which reflects a similarly weak representation of our economy.  

READ RELATED ARTICLE:  How Does a Cash Flow Forecast Help a Business?


Covid-19 contributed to a rise in inflation due to various factors including the temporary reduction in production and increased demand. When Covid-19 took place, restrictions were placed on which industries could continue labour and production, to reduce the spread of the virus. This resulted in a huge decrease in production for certain products and an increase in demand because there was little availability.

A classic example of this was the limited availability but high prices of indoor gym equipment. Due to people being isolated indoors, and gyms being forced to close, consumers were looking to purchase indoor gym equipment. However, with production closed down and an increased demand for these products, the prices began to rise due to limited availability. This is very similar to how inflation occurred across the economy as a result of Covid-19. 

National Debt: 

According to the Bank of England, national debt rose by £79 billion due to the impact of Covid-19. One of the main reasons for this increase in debt is because the UK government took the initiative of starting multiple support interventions to help people cope financially through the pandemic. This included the well-known furlough scheme whereby the government supplied 80% of workers earnings to employers so they could continue to pay their employees . 11.7 million people received money from the government’s furlough scheme which contributed a lot to the overall national debt of the UK. 

What is the Long-Term Impact of Covid-19 on the UK Economy?

Covid-19, did not only cause short term effects during its peak, but also has the potential for more impactful long term effects. From our spending habits to the level of GDP, below we have detailed the main long-term impacts of Covid-19 on the UK economy. 

Change in Spending PatternsDespite the reopening of hospitality venues, people are still spending less on entertainment and outings due to a shift in spending patterns. Instead, it is reported that spending has increased on household items, and groceries has become more of a priority. This may result in a reduction in the hospitality market and the closure of many businesses. 
Changes in ProductionDue to changes in consumer habits, there has also been a shift in what we produce as a country. For example, due to the widespread, continued adoption of working from home, there is beginning to be less demand for offices and more demand for appropriate housing. As a result, the housing market will adapt to follow this pattern long-term and become more expensive.
Changes in the Way We WorkDue to the increase in working from home, there has been increased spend on technology such as portable laptops and video calling programmes. Historically, the demographic of people working from home tended to be women. However, due to working from home becoming more common, it is possible that there will be an increased amount of women in higher paid, more complex jobs. 
Continued Decrease In GDPReports suggest that it is going to take a long time for the economy to recover from Covid-19 and this is reflected in the continuous drop in GDP. It is predicted that GDP will remain at least 2% lower than it would have been prior to the pandemic for many years to come. This represents a weak economic future for the UK. 

What was the Impact of Covid-19 on Businesses? 

Covid-19 caused many businesses to close, both temporarily and permanently. This is due to restrictions set by the government on key workers and limitations of staff from people catching the virus. This was particularly noticeable in the retail industry because shopping was not classed as essential, therefore shops had to close. As a result, people who worked in retail were left to live on the furlough scheme organised by the government.

READ RELATED ARTICLE:  What is the Difference Between CSR and ESG?

When shops closed, consumers began to shop online even more than they did pre-lockdown, with reports showing increases in sales by 50%. Unfortunately, when shops were allowed to open again after Covid cases began to ease, consumer behaviour did not switch back to pre-pandemic shopping habits. People continued to shop online which has resulted in businesses reducing the amount of stores they have open or simply having to close down because they don’t have a strong online presence. 

Furthermore, businesses have also struggled to maintain a healthy cash flow throughout the pandemic due to little or no revenue being generated. In particular, the construction industry was reported to be the largest industry with the lowest amount of cash reserves, at 15%. Overall, two fifths of businesses in the UK, reported that they were struggling with little or not cash reserves and were very concerned whether they would make it through the pandemic.

What’s more, exporting businesses also experienced significant issues due to Covid-19. Out of the current trading, export and import businesses, 66% experienced a challenge in exporting and 79% on importing. This was due to the extra time and paperwork it took to find ways of transporting goods safely across borders. From additional hygiene checks to reduced staff, the transporting process became a lot slower and a lot more expensive for businesses which made the difficult time during the pandemic even more restrictive. 

Business Forecasting at ARB Accountants 

If you are a business owner who is struggling with recovering from the impact of Covid-19 and require some support from an experienced accountant, then ARB Accountants is here for you. Our Business Forecasting service can help you to plan for your financial future and identify areas where you could improve your financial performances.

Whether you are a sole trader or small family business, ARB Accountants is here to support you and your Business Forecasting needs. If you have any questions, don’t hesitate to get in touch by clicking here. 

Call Now Button