22 October, 2020

Trading Out Of The Economic Impact Of The Lockdown

The government’s macro decisions on how to get GDP back up to pre-pandemic levels mirrors the micro decisions of every UK business, large and small, adversely impacted by the lockdown as to how to get their sales revenue and profits to bounce back.

All businesses know that they have two choices to make when they want to increase their net profit. They can decide to cut costs and they can decide to increase sales revenues. And they can do either or both.

The government’s decisions mirror these same two business choices. The government can decide to increase taxes and they can decide to stimulate economic activity. The Chancellor’s ‘Eat Out To Help Out’ scheme was a great example of the latter that resulted in people getting back into the habit of going out of their homes to eat at the start of each week in August after lockdown had shut down all eating out venues for the previous four months.

Indeed the scheme was such a success in stimulating demand that there were reports of long waits in queues yesterday as the scheme ended last night. And ironically many of the private sector firms in the hospitality sector are advertising their own versions of the government’s scheme.

How often has that happened before, that a government scheme has been so successful that it has been continued in the spirit of good marketing without government support?

So we all wait with bated breath to hear what the government’s proposals are for starting to rebalance the post-pandemic books. And whilst the ratio of public debt to Gross Domestic Product is now more than 100% it has been higher, reaching an eye-watering 260% after the Second World War.

And then the unique and as yet not finalised post-Brexit trade agreements have to be factored in. So there are stormy economic seas ahead still to be navigated.


Business Talk

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