COVID-19 is taking its economic toll worldwide as it impacts developed, emerging, developing, or frontier economies alike.
A recent paper by the Institute for Fiscal Studies in the United Kingdom reveals a sharp fall in employment, income, and earnings since the pandemic started.
As it is the case during crises, the poorest fifth of households saw their median earnings fall by 15% between January and May 2020, outpacing the 8% decline for other segments.
No Signs of Recovery in May
April showed an abrupt decline in earnings, income, and employment, and the hope was that May would show some improvement in all three areas. However, the decline continued as the number of jobs was 4% lower when compared with April, putting pressure on households’ income.
As the poorest fifth has been hit the hardest, there’s a rising trend of non-payment of household bills accentuated in May. The deterioration reveals fewer households were making payments for mortgages, rent, and council tax payments by 14%, 11%, and 9%, respectively. It suggests the struggle to make ends meet as the crisis persists, and the economic outlook does not change for the better.
Moving forward, the biggest problem comes from the job market and the economy’s inability to create enough jobs in the new normal to outpace the number of lost ones. As a comparison, the 2007-2008 and 2018-2019 were years when the employment rate in the United Kingdom increased across the income distribution, but the biggest gains were seen at near the bottom, for households around the official poverty line. Or, exactly these households are the ones being hit the worse during the current economic crisis.
Due to the Brexit uncertainty, the situation facing the United Kingdom’s economy is far more difficult than otherwise. The currency market is the first one to reflect investor’s indecision as the British Pound is one of the weakest currencies in the developed economies.
The Bank of England has a tough job ahead, fighting to provide liquidity for businesses so to prevent bankruptcies and further job losses. From a monetary policy point of view, the decisions taken by the central bank do not affect only the rate of inflation, but also employment and, ultimately, household incomes, terribly affected by the pandemic.
COVID-19 put an end to globalization as we knew it. Countries are forced to cope alone with the economic crisis, and the 2016 Brexit decision puts the United Kingdom in a tough spot during such times.