A year ago this week, Cebr closed its office for an indefinite period, in light of the hastening spread of a new coronavirus. Countless workplaces up and down the country did the same. Many were prompted towards mass remote working, while businesses more reliant on face-to-face contact ceased their operations completely. It was clear that Covid-19 was set to bring an unprecedented degree of disruption.
Twelve months later, the country has faced three nationwide lockdowns, widespread uncertainty, and unprecedented levels of public sector intervention. Consumer footfall has plummeted, businesses are still shut, and many individuals have found themselves out of work. Further bouts of area-specific restrictions have added some regional variation to economic fortunes, a matter made all the more pertinent given the Government’s promises to ‘level up’. These factors, amongst countless others, have entailed a huge cost to the UK economy, in addition to the devastating cost of thousands of lost lives.
Cebr’s forecasts suggest that, over the past year, Covid-19 has been the predominant cause behind a £251 billion reduction in the UK’s gross value added (GVA). This figure is derived by comparing our final pre-Covid forecasts from the beginning of 2020 with the most recent data on actual economic output. In other words, it is a comparison between a counterfactual scenario in which Covid-19 did not occur and the actual experience of the economy in the past twelve months. To highlight the scale of this loss in activity, this reduction is roughly equivalent in size to the entire annual output of the South East, in pre-Covid circumstances, and nearly twice the output of Scotland.
Continuing the geographical comparisons, we can estimate the size of the Covid-19 losses in each of the UK’s regions. We find that, in absolute terms, the losses in London have been the highest, amounting to £51.4 billion of lost activity. This was followed by the South East and East of England, with losses of £34.7 billion and £26.6 billion, respectively.
Interesting findings stem from a comparison between each region’s contribution to the overall pandemic-induced loss and their contribution to UK-wide GVA in normal circumstances. This can highlight the areas that have disproportionately lost out on economic activity. For instance, while London contributed 20.5% of the overall loss in activity as a result of coronavirus, the capital contributes just under a quarter of the country’s activity ordinarily. As such, London’s contribution to the £251 billion of UK-wide losses was smaller than expected given the size of its economy. This can be explained through London’s comparative advantage in sectors such as finance & insurance and information & communication, with these fields exhibiting some of the smoothest transitions to remote working.
The opposite was the case for regions such as the West Midlands, East Midlands, and the East of England, where Covid-induced losses were larger than expected given their typical contribution to the economy. The sectoral composition could be one factor behind such differentials, with a greater degree of output in these regions stemming from wholesale & retail and transport & storage, two sectors that have been heavily hit by the lack of consumer footfall. These regions were also amongst those to experience region-specific restriction measures at some point in 2020 while other parts of the country were largely opening up, with local lockdowns occurring in Birmingham, Leicester, and Luton. Differing degrees of restriction measures could also explain Scotland’s relatively larger contribution to the UK’s overall economic losses, with much activity being curtailed across the country’s Central Belt in light of growing case numbers in Q4 2020.
Counterfactual comparisons between the economy’s current trajectory and where it might have been had Covid-19 never occurred make for grim reading. Nevertheless, the economy is still expected to return to pre-pandemic levels of output in the next twelve months. Despite this anticipated recovery, some regions may be more subject to lingering effects from the pandemic, such as higher rates of joblessness and a greater degree of business closures. If the Government is truly committed to addressing regional imbalance, it will not allow these areas to disproportionately bear the weight of the losses brought on by the pandemic. To do otherwise would risk further divergence in fortunes.
For more information, please contact:
Sam Miley, Economist email@example.com phone: 020 7324 2874