“COVID-19 has had a profound impact on British consumers and businesses, shutting down major sections of the economy and having a serious effect on job security. As a result, consumer confidence has taken a dive, while concerns about the impact of Brexit have spiked as people consider the implications of major systemic change on top of the fallout from the coronavirus crisis.
However, consumers are keen to spend when they can, with planned financial activity significantly higher than the record-low activity seen in the three months to May. Consumer demand will not return to pre-COVID levels immediately, but millions are ready and waiting to spend.”
– Rich Shepherd, Associate Director – Financial Services

An explosive shock to the British economy

For almost four years debate has raged about how Brexit could cause unprecedented disruption to the British economy, potentially triggering a severe slowdown. However, within weeks of the UK’s withdrawal from the EU being sealed, COVID-19 began to spread through the British population. Its economic repercussions have gone way beyond any pessimistic model of the impact of Brexit, leaving businesses and individual workers reliant on vast state support.

GDP figures for the first quarter of the year show that the economy contracted by 1.6% compared to Q1 2019, and was 2% smaller than Q4 2019. This period included just a few days of the strict lockdown rules applied towards the end of March. Q2 figures will confirm that the UK is in a recession, and are expected to show the largest quarter-on-quarter fall in GDP on record, according to the Bank of England.

Non-essential consumer-facing businesses across the economy have been forced to shut their doors, and while some have managed to mitigate some of the impact through online sales and home delivery services, the impact has been severe. The total value of retail sales shows the extent of this, with sales in April 2020 23.1% lower than April 2019.

Consumers are suffering economically and emotionally…

This Report focusses on the British economy and the economic effect of COVID-19. However, it is impossible to disentangle this from the emotional impact of a virus that, according to the ONS, had been involved in the deaths of 43,837 people in the UK up to 22 May, and infected more than a quarter of a million. On top of anxiety surrounding the virus itself, consumers have faced more than two months of severe restrictions on their individual freedoms.

Mintel’s research shows that two thirds of consumers had a high level of concern about the impact of COVID-19 on their lifestyles during the week of lockdown being announced. While this has declined as people have acclimatised to the new situation and some restrictions have been lifted, more than half still rated their concern as four or five out of five in the third week of May.

More pressing for many, and just as detrimental to consumers’ emotional well-being, has been the rapid fall in job security and rise in unemployment. The unemployment rate is expected to have more than doubled since the start of the COVID-19 outbreak. At the same time, a third of workers have been furloughed or been unable to continue their self-employed work, becoming reliant on the Government’s Coronavirus Job Retention Scheme or the Self-Employment Income Support Scheme.

With their wages having been lost, reduced or put under threat, many consumers are understandably reluctant, or feel unable, to make major commitments. Indeed, 27% of consumers say they have put off making major purchases.

… but many can see a light at the end of the tunnel

The economic recovery from COVID-19 won’t be an easy one. For example, it will take considerable time for certain sectors, such as travel, to get back to pre-COVID levels of demand. However, consumers’ planned financial activity for the next three months suggests that, when restrictions are lifted, many people are keen to get out and spend again. This mentality isn’t uniform across the population though, and there will be people wary to return to normal for a while after lockdown ends, but the signs are reasonably positive for consumer demand.

The current crisis has massively eroded Brexit positivity

Brexit sentiment fell to its most pessimistic level in May. COVID-19 and Brexit are vastly different phenomena but consumers are taking lessons from the impact of the coronavirus on business and considering what the disruption of leaving the Single Market and Customs Union at the end of the year could bring.

Consumers in May are also considering the impact of Brexit in a much different context than in previous months. COVID-19 means the UK will leave the Single Market and Customs Union on a much weaker footing, with an economy either in or recovering from recession, and a recovering jobs market. Any economic downside of Brexit will therefore be magnified, with the economy less able to withstand negative repercussions.

Despite this, most consumers continue to hold differing expectations for the impact on the wider economy and on their own situation, with more than half anticipating Brexit to have neither a positive nor negative effect on their income or career prospects.

Key economic indicators

Figure 1: Key economic indicators, May 2020
Period Value
Annual GDP growth Year to Q1 2020 -1.6%
Unemployment rate January-March 2020 3.9%
CPIH April 2020 0.9%
Annual change in average weekly earnings (excluding bonuses) Year to January-March 2020 +2.4%
Bank of England Base Rate April 2020 0.10%
Annual change in house prices (Land Registry) Year to March 2020 +2.1%
Value of retail sales (including fuel) Year to April 2020 -23.1%
Source: Office for National Statistics, Bank of England, Land Registry
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