Coronavirus (COVID-19) Strategic Framework update February 2022: business and regulatory impact assessment

Policy Background

A separate evidence paper has been published to provide an overview of the key analysis and evidence underpinning the Strategic Framework Update. The evidence paper contains a detailed section on the impact of COVID-19 on the economy, which is relevant to the BRIA and is summarised here.

Many parts of the economy have been disrupted in various ways and for an extended period of time by the pandemic. Restrictions have closed businesses in some sectors and have also limited the capacity at which businesses can operate through, for example, physical distancing. Businesses less directly affected by restrictions have still been affected by the pandemic as a result of changing consumer demands and ongoing uncertainty. This has had a negative impact on economic output at repeated points throughout the pandemic and periods of restrictions, alongside the broader impacts of the pandemic itself, may have weakened business resilience.

As the initial lockdown lifted, and as business and society reopened, there was a reversal of the output contraction for many parts of the domestic economy. However, not all sectors have recovered at the same rate, with the sectors that have been most impacted by restrictions remaining furthest below their pre-pandemic levels of output. Moreover, even with economic output back or close to pre-pandemic levels, the economy would have grown during the pandemic period, highlighting forgone output growth from the pandemic.

Restrictions such as working from home have had a negative impact on city centre economies in particular, as a result of the loss of associated footfall from office trade in the hospitality and retail sectors.

The headline labour market indicators compare well against historical trends, with unemployment at 4.1% in the period October to December 2021. This in part reflects the success of the furlough scheme in protecting jobs, alongside the easing of restrictions on economic activity when appropriate and other factors. It underlines the important role of financial and business support in protecting the productive capacity in the economy.

A future scenario within the pandemic could still pose economic challenges, even without restrictions. This is because consumers could change their behaviour, for example in response to any new variant, and voluntarily stay away from some settings, resulting in lower consumption in these sectors of the economy. Self-isolation rules could also lead to work absences with potential adverse consequences for productivity. Although businesses have adapted their business models throughout the pandemic, ongoing uncertainty makes business planning more difficult.