The UK’s COVID-19 vaccination programme is set to play a crucial role in the economic recovery, according to a report released today by the Bank of England.
With the economy expected to shrink by up 4.2% in Q1 this year, as a result of the updated lockdown restrictions across the UK, there is a growing confidence that the spring will kickstart a spending spree by the public once restrictions are eased. As a result, the Bank of England held its interest rates at 0.1%.
Despite the unemployment rate set to rise further to almost 8% – from its current 5% rate – there is optimism in a recovery.
This is because many of the UK’s highest earners have been working from home, and have therefore saved more during the coronavirus pandemic. As a result, the BOE has reported that more than £125bn has been saved over the last year. And with the older generation generally being vaccinated first, the bank is confident that the rate of spending will increase in the months ahead.
A statement from the bank read: “COVID-19 vaccination programmes are under way in a number of countries, including the United Kingdom, which has improved the economic outlook.
“GDP is projected to recover rapidly towards pre-COVID levels over 2021, as the vaccination programme is assumed to lead to an easing of COVID-related restrictions and people’s health concerns.
“GDP was projected to recover rapidly towards pre-COVID levels over 2021, as the vaccination programme was assumed to lead to an easing of COVID-related restrictions and people’s health concerns. Consumer Bank of England Minutes of the Monetary Policy Committee meeting ending on 3 February 2021, spending was expected to rise materially, supported by households running down around 5% of the large pool of additional aggregate savings accumulated while spending on some activities was restricted.
“Business investment was also expected to rise as sales recovered and uncertainty declined, albeit more slowly than consumer spending. Activity was also supported by the substantial fiscal and monetary policy actions already announced. GDP was projected to reach its 2019 Q4 level in 2022 Q1.”
How has the vaccine improved business confidence?
The recent success of the UK vaccine roll-out has sent business confidence to a six-year high despite January’s lockdown measure, lifting the hopes of service sector firms across the country that have been forced to close.
The latest data from IHS Markit has shown a decline in signals growth last month from 50 to 39.5, but the rapid rollout of the vaccines, that have now protected 10 million people against COVID-19, has meant that business confidence for the next 12 months is at its highest level since May 2014.
Since the onset of the pandemic, the vaccine roll-out success has been the first real news announcement that has viable potential to support society back to ‘normal’ and this is in no small part down to vital biotech innovation that has been able to move forward at record speed when it was crucially needed.
For the businesses across the country that have been forced to close and cease trading, they can now look forward to the easing of restrictions and pent-up demand that will act as a springboard to recovery later this year.
Private investment is a vital catalyst for wider economic growth – with the UK’s high net worth community providing essential early indicators for the direction of wealth at a time where the distribution of capital is key.
With a 12% increase in new businesses starting up during 2020 compared to 2019, 2021 is set to create some exciting investment opportunities for investors throughout the country and some that are sure to boost the wider British economy, with 44% of investors now looking to back UK-based companies rather than global firms.
Over and above its financial impact, the vaccine’s success also serves as a significant moral booster for the UK’s workforce in a period where uncertainty is rife and the economy is only as strong as the workforce that underpins it. The wider sentiments of returning the work safely is paramount and with the widespread roll out of the vaccine, many across the UK will now be able to return to their jobs in a safe manner without having to worry about their health, furthermore helping to revitalise the economy from the ground up.
CEO of IW Capital, Luke Davis, comments: “The vaccine’s success so far is a welcomed sight for investors and businesses alike, and now with business confidence at a high and with investors looking to back British businesses, we are sure to see the resurgence of the sectors that have been hardest hit – such as hospitality – with pent-up demand from lockdown playing a key role in boosting the economy later this year.
“People want to get out and spend, businesses want to grow and investors want to help them do that, it’s a perfect storm for rapid growth. Pubs will bounce back along with restaurants and other hospitality, no one will want to stay at home after the year we’ve had and I really believe that. Working with local residents on redeveloping the pub and hospitality venue Rockwater Hove has shown me how much people want, more than ever, a place to come together as a community. We are not out of the woods yet, but the sun will almost certainly be shining when we are.”
“An increase in new businesses even with the uncertainty and limitations that the pandemic has produced is a great thing to see. With more and more people looking to start their own businesses, private capital is proving to be crucial for the development of these entities, and with the new year bringing hope to investors, we should start to see these new businesses grow and flourish post-pandemic.
“The SME community make up 99.9% of private sector businesses, and so supporting them to ensure their financial growth, is of the utmost importance to the overall health of the UK economy. Small firms already employ over 16million people in the UK, and pre-pandemic, this sector was growing at a faster rate than the overall job market. A return to this would provide a welcome boost.”
What more can be done to kickstart the economy?
The Chartered Institute of Management Accountants (CIMA), is calling on the Government to take ambitious steps and play a crucial role in driving the UK’s economic growth and helping to provide new skills-led employment opportunities for the digital era as the country rebuilds its post-pandemic economy.
Worryingly, CIMA’s 2020 Mind the Skills Gap report published last December revealed that 84% of UK SME employees are not currently undertaking any skills training or professional development.
In addition, only 31% of SME employees said they have undertaken skills training and professional development in 2020 despite the coronavirus pandemic forcing many companies to reimagine how they do business.
Concurrently, 65% of UK SME business leaders said that they have identified skills gaps within their organisation as a result of the coronavirus pandemic, with over 90% stating that these skills gaps are significant enough to hamper their organisation’s future growth and success.
Andrew Harding, FCMA, CGMA, Chief Executive – Management Accounting at The Chartered Institute of Management Accountants, commented: “Based on our own research over the past three years and ongoing collaboration with business and finance leaders, we are getting a consistent picture of the structural weaknesses in our current and future workforce’s skillset. The digital skills divide is widening, and the acute disruption brought on by COVID-19 put this issue into sharp focus.
“The UK must become a global leader and the Government must accelerate its commitment in encouraging both businesses and employees to reskill and upskill. Our research confirms that over 80% of employers would redeploy the Apprenticeship Levy to plug wider skills gaps for new and existing workers if rules on how it can be used were relaxed.
“Ahead of this year’s National Apprenticeship Week in February and the Chancellor’s Budget Statement in March, CIMA is urging on the UK Government to do more to reskill and upskill the country’s workforce. We believe this is critical to address the UK’s historic productivity woes and put the economy back on a sustainable, sound footing.”