Yorkshire Outlook Marred By Uncertainty And Risks Of Hard Brexit
22 June 2020
The continuing impact of the COVID-19 virus is expected to see Yorkshire’s economy contract by 7.1% in 2020, with the economy unlikely to be able to fully restart until a vaccine or effective treatments for the virus are available, according to KPMG UK’s latest quarterly Economic Outlook.
KPMG forecasts economic decline for Yorkshire of 7.1% in 2020
Significant spike in unemployment is expected in the second half of 2020 as the Job Retention Scheme unwinds.
Recovery in 2021 could be hampered by Brexit and lack of breakthrough on pandemic.
While KPMG has considered four scenarios focused on differing dates of the eradication of the pandemic, this data assumes the following: Lockdown restrictions lift this summer, so activities can resume more fully in the second half of 2020 and a vaccine will be available from July 2021, enabling all social distancing measures to be removed and pandemic-related uncertainty to dissipate by the following month.
However, the UK could start 2021 with another negative shock to the economy, due to the end of the transition period with the EU. National GDP, which it estimates will decline by 7.2% this year, is forecast to contract further, at least during the first quarter of the year. This would see UK GDP recover only modestly next year, rising by 2.8%.
Euan West, KPMG’s office senior partner in Leeds, commented: “Like many parts of the UK, our region’s economy will be severely hampered by the uncertainty of being without a clear end to the current crisis despite a gradual easing of restrictions.
“On the upside, the dominance of the health sector in our regional economy offers some insulation from the downturn, while we are not overly reliant on the hardest hit sectors such as travel and hospitality.”
Crisis takes its toll on employment
Despite heavy support from the government’s Job Retention Scheme (JRS), the current crisis is having a material impact on the labour market. Lockdown restrictions imposed to combat the pandemic have created a weaker economic environment which could see the national unemployment rate averaging 8.6% this year and 11% in 2021.
While the JRS could help shield millions of workers from redundancy, further job losses during 2020 may be inevitable as the economy adjusts to the new economic environment. In addition, it is likely that the scheme will end before employers can absorb all furloughed workers, triggering a fresh spike in unemployment later this year.
Brexit risk to outlook
Economic recovery next year could be hindered by Brexit. KPMG’s forecasts assume that a deal will be reached by the end of this year, enabling the UK to trade with the EU without tariffs or quotas and will cover some services. Additional trade friction is, though, expected to cause exports to fall back initially despite some recovery in many of the UK’s export markets. An end to the transition period with no deal, or with a more limited trade deal, would see a much weaker economic recovery next year.
Yael Selfin, Chief Economist at KPMG UK, concludes: “Uncertainty about the course of the pandemic and the nature of future relationships with the EU is making it harder for businesses to plan and operate. Government should aim to provide as much clarity as possible and offer more flexible support for businesses in the meantime.
“The pandemic will leave a lasting mark on the economy. We all need to adjust to a new future, not just to the current recession, and make the most of the hand we’ve been dealt to build something better for us all. That could be doing more to help the environment, investing more in our essential workers, or matching our universities with local businesses to improve regional productivity. If we get this right, the future may well be a lot brighter.”