The UK economy has been plunged into the depths of a financial rut at the hands of the COVID 19 coronavirus pandemic. For the first time since the 2008 financial crisis, the country is in recession – meaning that the nation’s gross domestic product (GDP) has fallen for two consecutive quarters.
Whilst economic turmoil is certainly not a new phenomenon, it’s quickly becoming apparent that the COVID-19 recession is a little different from its predecessors. For one thing, this recession has seen the closure of many businesses as a result of external factors rather than purely financial issues. In addition, governments and companies alike are trying to address 2020’s financial woes in new and innovative ways as compared to previous downturn periods.
Here we take a look back at some of the UK’s past recessions to see if there’s anything that we can learn, and whether things really are different this time around.
1920 – 1926: The post war slump
It’s difficult to think of a more ferocious catalyst for economic decline than a devastating war. In the years following WW1, the UK’s GDP continued to sink having dropped by over 20% between 1919-1921. War wasn’t the only thing to blame though, with the nation remaining focussed industries that were ill-equipped for modern commerce. The cotton, coal, steel, and shipbuilding industries had served the UK well during the Victorian era, but they simply didn’t cut it as the rest of the world looked to accelerate out of conflict.
Part of the problem during the post war slump was that Britain was doubling down on efforts to restore its pre-war status as the world’s trading giant. This came despite the fact that the US had overtaken its tea-drinking cousin in terms of output per capita by no later than 1914. On a basic level, the UK was attempting to trade in an arena that the rest of the world had left behind with embattled nations turning inwards in the hope that they could restore their domestic industries.
Whilst a century separates COVID-19 from the post war slump, there are still parallels that can be drawn between the two recessions. Back then, the country abandoned long-term thinking to focus on the war when a more future-focused approach might have better prepared them for the world post-conflict. In a similar way, it’s important now for businesses and governments to face forwards as we dive headfirst into the new normal.
1973 – 1976: Oil woes
Not only did October 1973 signal the end of England’s hopes for the upcoming World Cup finals, but also the beginning of what was colloquially known as the Yom Kippur war. This conflict saw the oil cartel OPEC nations announce supply restrictions which lead to energy shortages and, critically, a fourfold increase in oil prices. With the UK economy already in a troubling state thanks to high inflation, unemployment began to rise and living costs saw an annualised increase of 26% by 1975.
In many ways, today’s recession is displaying similar characteristics to the oil crisis of the early 1970s. Firstly there are the issues presented by oil, albeit that then prices had risen whereas today they are freefalling. Just like in the early 1970s, it’s also the case that businesses today are trying to combat mass issues within the field of supply and demand. Brought about by COVID-19 and the looming finale of the Brexit transition period, it’s now critical for firms to innovate when it comes to transacting with customers.
Back then this meant turning away from just growth strategies and instead finding ways to genuinely improve the way business was done. Today, however, the adoption of digital solutions may just offer the answer instead. From better websites and online shops through to the eCommerce payment gateways that make it possible for businesses to actually trade on the internet, the good news is that technology is on our side this time around.
1980 – 1981: Thatcher’s gambit
Coming to power in 1979, Margaret Thatcher’s Conservatives were set on a course of radical action with the aim of reversing the UK’s economic woes. To tackle inflation, the government raised interest rates whilst slashing public spending and taking a hard line on the ‘welfare state’.
Now, whilst this certainly cut the government’s spending, it also saw the UK’s unemployment rate rise by nearly 12 percent. Lower spending meant slower growth and job cuts, things that sound all too familiar in 2020. If we’re to ride out the COVID-19 economic storm, it’s important to recognise that aggressively dialling back spending won’t necessarily help. We need a buoyant economy, and there’s no room for a retreat in public and commercial investment.
2008-2009: The global financial crisis
Most recently, the financial crisis of the late 2000s saw a run on the banks and far-reaching implications for almost all areas of life. Back then, fast and decisive action was the best way forward and former UK Chancellor Alastair Darling is known to have suggested that law and order nearly broke down before the Royal Bank of Scotland was bailed out.
Extreme uncertainty is a breeding ground for panic, the opposite of what you want during problematic economic periods. Of course robust action is necessary, but it’s also important to focus on the longer-term picture to identify whether steps taken to mitigate one risk simply end up feeding another. Looking outside of government, businesses would do well to take the same approach, and attempt to grow steadily and carefully for the future. Reactionism may be attractive during a pandemic, but it may not make for stability and prosperity in the years ahead.
Recovery or ruin for COVID 19?
With Brexit waiting in the wings and a new coronavirus lockdown to contend with, many people are hoping that the economy will see to itself. It’s certainly the case that recovery has been taken out of the hands of businesses who have been forced to shut their doors as a precautionary pandemic measure, but we are at least blessed with modern technology and can make money online. For those companies that haven’t yet made the jump to ecommerce, now is the time to take stock of the past and realise that innovation is very much the order of the day.