The fallout from the coronavirus crisis will affect certain sectors of Britain’s economy, such as education, construction and hospitality, harder than most, according to analysis by the government’s independent economics watchdog.
The Office for Budget Responsibility warned on Tuesday that UK gross domestic product (GDP) could plunge by 35% between April and June, while the unemployment level could soar by more than 2 million people if the government’s lockdown measures were maintained for three months.
As pressure grew on ministers to outline an exit strategy from the tough controls on social and business activity to contain the spread of Covid-19, the OBR report outlined how certain key sectors would suffer severe blows in terms of reduced economic output over the second quarter.
Education -90% reduction in output
Education will be the sector hardest hit by the coronavirus crisis, according to the OBR analysis, with the impact likely to be felt most by universities. Hundreds of staff on precarious contracts have already been dismissed by their employers, while international students from China and other countries are cancelling enrolments.
The lobby group Universities UK has warned that up to £6.9bn in fee income is at risk because of non-UK and non-EU students staying away this year.
More than half of staff in the sector are in insecure employment, so especially vulnerable. British universities have made a plea for billions of pounds’ worth of research and bailout funding.
Accommodation and food services -85%
Forced to close to protect lives the hospitality industry is under severe pressure in the coronavirus crisis, with restaurant bookings dropping to zero. Economists warn the sector will find it harder to recover lost output next year, as cancelled travel plans and restaurant bookings are mostly gone for good.
More than three million people work in the sector, including many on low wages; they would be hardest hit if employers cut jobs rather than keep staff on using the government’s furlough scheme.
Construction -70%
The construction purchasing managers index (PMI), a closely watched gauge of activity in the sector, showed in March the steepest decline in activity since 2008, as cranes and diggers on building sites across Britain fell idle to protect the health of workers.
Housebuilders have put building work on hold, although some work continues elsewhere, including on the Hinkley Point C nuclear site, Britain’s biggest construction project. The green light has also been given to work on HS2 rail project, which the building industry says will help boost activity. Commenting on the economic boost, Manuel Cortes, chief of the transport union TSSA, said: “It’s importance cannot be overstated.”
Manufacturing - 55%
Factories around the world have been forced to close or run limited hours amid the coronavirus spread, causing mass disruption to global supply chains. Factory output in Britain has fallen sharply, with firms including Airbus, reducing production. Some manufacturers are shifting to produce ventilators and other equipment for the health service to combat the spread of the disease.
Seamus Nevin, the chief economist at Make UK, the manufacturers’ trade body, said many firms were in a precarious position, but that government support could cushion the economic fallout.
As a vital sector for the economy, manufacturers could be allowed back to work before less critical ones like entertainment, according to government sources.
Wholesale retail and motor trades – 50%
Panic buying and consumers stocking up in supermarkets and food shops has helped boost the grocery sector, yet the forced closure of most other high-street shops – such as fashion chains, furniture shops and car showrooms – outweighs the boom in spending elsewhere.
Footfall in UK retail outlets has collapsed by 90% since the start of March according to industry surveys, while new car sales plummeted by 44% last month.
Although food sales benefit from people eating more at home as restaurants remain closed, the credit ratings agency Moodys warned that online sales could lower retailers’ profits, because warehousing and delivery costs are high and measures to protect workers’ health still need to be taken.
Retailers have been given business rates holidays and offered government-backed loans, while the job retention scheme is being used to furlough staff.
Transport and storage – 35%
As the coronavirus pandemic brings travel almost to a standstill, the operators of trains, planes, buses, ferries and cruises have come under severe financial strain.
Airlines have been among the hardest hit. The International Air Transport Association (Iata) warned that flight operators would lose $314bn (£251bn) in revenue this year, about a quarter of typical annual sales.
The US government has agreed a $25bn bailout for its airlines to protect jobs, while pressure is mounting for greater support in Britain. The UK’s Airport Operators Association has said its members had furloughed between 50% and 80% of their staff, but that the government’s support schemes did not go far enough.
Real estate – 20%
House sales have been,in effect, put in the deep freeze under government guidelines to keep people at home during the coronavirus outbreak, with output expected to fall by around a fifth in the second quarter if lockdown conditions are maintained.
Shares in housebuilders have plummeted, while surveyors have called on the government to use a stamp duty holiday to help reboot the market once the lockdown ends.
Knight Frank, one of the UK’s biggest estate agents, has warned that house sales could plunge by almost half a million this year from 2019 levels. However, it expects prices may only slide by about 3% this year if the economic fallout is limited, before rebounding in 2021.
