Stimulating consumption and access to capital is key to UK economic recovery

May 22, 2020 Kerrie O'Flynn

On Thursday (21st May), the National Audit Office released a report on the ballooning cost of the measures taken by the UK Government in response to the coronavirus pandemic. Excluding data beyond 4th May, the independent Parliamentary body revealed the Government had spent a total of £127bn on COVID-19 initiatives. The bulk of the £127bn has been spent on direct business support and the furlough scheme, the cost of which had amounted to £82.2bn by 4th May.

Appearing before the Lords Economic Affairs Committee, Chancellor Rishi Sunak MP warned the UK faces “a severe recession the likes of which it had never seen”, with data from around the world showing that the economic recovery will not be a swift “bounce back” as had been previously hoped.

Giving insight into his priorities, the Chancellor revealed the “most important thing” to recovery was to reopen the sectors that have been shut down due to the pandemic, with a focus on retail and leisure to drive consumption and stymie youth unemployment. He went on to highlight the Future Fund – launched this week to provide quasi-equity capital for high risk start-ups – and the expansion of the R&D tax relief scheme, for supporting an innovative, entrepreneurial drive that will help the UK on its road to economic recovery.

The UK’s entrepreneurial and SME sectors have proven to be particularly strong within the UK’s economy as a whole, flexing resilience in the face of Brexit uncertainty. The success of these sectors is something the Government will want to see continue.

When delivering his economic outlook, Bank of England Governor Andrew Bailey also emphasised how “consumer caution” will have a big effect on the UK’s economic recovery. Appearing before the Treasury Committee this week, he indicated that the Bank of England – for the first time in history – would consider negative bank rates to stimulate the UK’s economy.

If the BoE opts for this, it will push banks to lend as much as possible and send a strong signal that households and businesses should spend. However, there is concern for levels of corporate debt already, with Q1 2020 witnessing “record levels” of bank lending. With this in mind, Bailey suggested options for private equity will be “absolutely important” to business – and the UK economy’s – recovery.