Covid-19: Retail set for prolonged pain with slow economic recovery expected

The UK’s economy is not expected to recover to 2019 levels until 2024 following the Covid-19 crisis, far slower than previously thought, according to a new report by the EY Item Club. It has predicted that GDP will contract by 11.5% in 2020, although there will be a return to growth in Q3 of this year.

The findings suggest the retail sector is set for a prolonged period of pain, with consumer spending likely to remain severely curtailed over the coming years. The report also noted that until the pandemic ends or a vaccine is found, there will be a reluctance to return to normal shopping patterns.

Mark Gregory, EY UK chief economist, said: “In a consumer-centric economy like the UK, reluctant consumers will limit the level of economic activity even with a shift to activity online.”

This is despite the encouraging data released by the ONS on Friday which showed retail sales in June had nearly returned to pre-pandemic levels.

Dr Howard Archer, chief economic advisor at EY, commented: “The UK economy may be past its low point but it is looking increasingly likely that the climb back is going to be a lot longer than expected. May’s growth undershot even the lowest forecasts. By the middle of this year, the economy was a fifth smaller than it was at the start. Such a fall creates more room for rapid growth later, but it will be from a much lower base.”

The crisis is expected to bring about rapid changes in consumer behaviour, including a shift to eCommerce and greater localisation.

Gregory added: “Covid-19 is also likely to accelerate changes that were already in progress. Net zero has been mentioned, and other trends include the adoption of digital technologies, a consumer focus on sustainability more generally and the shift from ever more globalisation.”

Recent figures from the ONS showed the UK’s GDP fell by 20.4% in April, the biggest monthly decline since records began.