Economists at Scotland’s Rural College (SRUC) have called for targeted support for those sectors most in peril following the end of the job retention and self-employment support schemes.
In a blog published by the London School of Economics and Political Science, Dr Cesar Revoredo-Giha and Montserrat Costa-Font warned that the end of these schemes could bring a sharp rise in the unemployment rate.
They also said that severing the UK’s ties with the EU in an abrupt manner should not be taken lightly, with the prospects of a no-deal Brexit increasing the climate of uncertainty surrounding the UK economy.
The economists looked at the monthly recovery of sectors related to the food and drink industry using the latest figures from the Office for National Statistics (ONS).
In the agriculture, production, food, alcoholic beverages and tobacco, services and accommodation and food services sectors overall, the gross domestic product (GDP) in July grew by 6.6 per cent compared to June. However, this was 12 per cent lower than the average for January and February 2020 and compared to July 2019.
The agricultural sector had a modest 1.1 per cent growth in July compared to June, but a smaller 2 per cent decrease compared to January and February 2020 and July 2019.
While all sectors were on the road to recovery, there was some diversity with the service sectors returning at a slower pace than the production sectors, due to the difficulty of reactivating demand and regaining confidence.
Some sectors, such as meat products, dairy and grain milling, grew above the pre-Covid-19 levels, helped by an unprecedented growth in the demand for cooking and baking, despite the contraction in food services.
However, all other food sectors are still below the pre-Covid-19 levels and recovery for some has been far from steady, with the manufacturing of vegetable and animal oil and fats starting to recover in April but decreasing by 6.3 per cent in July and the manufacture of prepared animal feed decreasing by 1.2 per cent in July.
Due to the massive contraction in demand, the service sectors were still at significantly lower levels in July than before the pandemic, with accommodation falling by 63 per cent and food services by 59 per cent.
Considering the growth rates, an optimistic scenario would see the food sector returning to pre-Covid-19 levels by September and the services sector by October.
However, the economists said it was important to assess the impact of eliminating the job retention and self-employment income support schemes on the industry, especially when combined with the slow recovery of production and the overall uncertainty brought about by Covid-19 and Brexit.
“It is not difficult to anticipate that when the furlough and self-employment support schemes reach their end, we should expect a sharp rise in the unemployment rate, particularly in sectors related to services and construction,” they wrote.
“The pandemic is still with us and although consumer demand is recovering, it is still far from pre-Covid-19 levels. A spike in the levels of infection will inevitably slow the recovery.
“It is crucial to maintain a quick pace of recovery to reduce the effects of ending the support schemes. However, given the diversity of the situation, probably a targeted scheme for those sectors most in peril is the way to go.”
They added: “Before Covid-19, the situation of the economy for a Brexit negotiation was different than what it is now. Different sectors have been substantively affected and are less fit to recover from new shocks. The prospects for reaching a smooth trade agreement with the EU are unclear despite the end of the transition period being so close. This only increases the climate of uncertainty that surrounds the UK economy.
“The EU has been the UK’s main trading partner and UK firms are highly integrated through bidirectional trade of final, in-process and raw materials. Severing this relationship in an abrupt manner should not be taken lightly.”