UK growth slumps amid epidemic fear
Fragile recovery halted by virulent Covid-19 outbreak
BRITAIN’S 2020 growth prospects are set to be downgraded by the influential EY ITEM Club think tank due to the disruption caused by the coronavirus to the global economy.
The ITEM Club, which uses the Treasury’s economic models to make its predictions, is looking at cutting its forecast for UK gross domestic product growth this year from 1.2 to 1 per cent.
Howard Archer, the think tank’s chief economic adviser, said that the clarity brought about by December’s decisive general election result has been replaced by uncertainty and disruption thanks to the Covid-19 virus.
“We had expected first quarter growth of 0.4 per cent but we’re looking at it going back to 0.3 per cent. Likewise in the second quarter, we could cut from 0.4 per to 0.3 per cent but that could be cut further as the impact is just starting to be seen,” Archer said.
“There is so much uncertainty, stock markets have been hit and it is weighing on activity. Markets are pricing in bad news but once this thing is contained, things could bounce back quickly.”
The epidemic has caused activity in China and other parts of Asia to grind to a halt, clogging up global supply chains and disrupting travel. There have been more than 83,000 cases so far and the virus has spread so quickly around the world it is feared it will turn into a pandemic.
The prospect of reduced economic growth comes after the coronavirus caused global markets to crash. Last week the FTSE 100 index of leading shares suffered its worst week since the 2008 global financial crisis, closing 13 per cent down at 6580.6, erasing £210 billion from the value of Britain’s biggest listed companies. Observers warn markets could slide further this week.
AJ Bell investment director Russ Mould said: “If the rate of [Covid-19] new cases slows, markets may recover some of their poise. If it gets worse, they’ll stay fearful.”
Pantheon Macroeconomics warned that sterling could fall if the outbreak becomes a pandemic and sparks an investor sell-off. Samuel Tombs, chief UK economist, said: “If virus-related anxiety causes investors globally to pause on all risky acquisitions, or derisk existing portfolios, sterling is likely to struggle.”
Covid-19 has caused companies around the world to close premises to prevent the spread of infection, causing a spike in the number of people working from home.
Shashi Kiran, chief product officer at networks provider Aryaka, said: “This phenomenon is unprecedented, it is imposing huge demands on networks’ infrastructure.”