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Economy needs to grow its way out of crisis

31 July: A leading economist has called on the government and businesses to work together to help the UK economy grow out of crisis, with deregulation, tech adoption and more flexible business models high on the agenda.

UK government policy actions to counter the impact of COVID-19 have helped to put a floor under the economy and recovery is partially underway this year, but we are far from out of the woods and the economic prognosis remains bleak in places.

That’s the view of Trevor Williams, former Chief Economist at Lloyds Bank, visiting Professor at the University of Derby and rotating Chairman of the Institute of Economic Affairs Shadow Monetary Policy Committee (SMPC), speaking on an ICAEW webinar focusing on the economic outlook for the UK over the next year.

Against a backdrop of growing protectionism, Brexit and rising political instabilities around the world, forecasts suggest that the UK economy will shrink by between 10% and 14% over the year ahead, and unemployment is expected to peak at around 10% or the three million mark.

The quarter to May saw widespread contraction across all industries with services, which make up 80% of the UK economy, particularly hard-hit. Nominal pay has fallen sharply and real pay - adjusted for inflation - is now in negative territory. There has recently been a glimmer of hope for the retail sector in the form of people returning to shops to buy goods in-store. “Footfall has seen quite an upturn, although it still remains well below pre-crisis levels. There’s a long way to go before we can say things have returned to normal,” Williams says.

Despite the huge increase in debt being taken on by the UK government, Williams warns against a new era of austerity, tax increases and spending cuts to get the economy back on an even keel. Instead, he says the focus should be on deregulation of the economy to make it easier for new firms to start up and get products to market quicker. “The economy needs to grow its way out of this,” he urges.

Embracing new business models will see new winners emerge, Williams says. “If you are able to come up with new ways of doing things that get around the challenges, there is opportunity for small, nimble businesses to survive and adapt their operations.” The opportunities to use new technology to do things smarter are huge, Williams says. 

Meanwhile, investments in infrastructure, provision of economic safety nets for those on low incomes and a focus on education geared towards the sorts of jobs that industry will need in the future are all paramount to economic prosperity and tackling social injustice, Williams adds. 

Further uncertainty looms, with the end of the UK’s transition period for leaving the EU just months away. “New deals will be done to plug gaps created by the changed relationship with the EU. There will be customs controls and checks for compliance with regulatory EU standards and VAT and an end to the recognition of UK professional qualifications,” Williams explains. “This is an opportunity for those businesses that can help organisations find workarounds for the challenges they face.”