British households will have £43bn less cash available for essential spending between April and June, as the UK slides into its deepest recession in decades.
Disposable income earned by UK households, once it has been adjusted for tax and benefits, will be 17% lower in the second quarter of this year, according to analysis from the Centre for Economics and Business Research consultancy.
The CEBR has calculated the monthly hit to disposable incomes will reach £14.2bn per month, meaning a monthly fall of £515 per household as workers lose their jobs, accept reduced pay or hours, or are placed on furlough.
Economic data due this week is expected to show early signs of the pandemics impact on the economy, even before workers income is fully hit. UK retail sales are expected to have fallen by up to 10% in March.
“These numbers are likely to be awful, supermarket food sales notwithstanding,” said Michael Hewson of CMC Markets. While food sales surged in the runup to the lockdown, demand for other items declined sharply.
“Fuel sales are likely to have contributed a good proportion of losses as everyone is confined to their home,” Hewson added.
The drop in consumer spending has already forced several struggling retailers including Debenhams, Oasis, Warehouse and Laura Ashley to call in the administrators since the shutdown began.
The data firm Markits survey of UK purchasing managers, due on Thursday, is likely to show that output across the economy slumped in April, faster than in the depths of the financial crisis in 2008-09.
The CEBR predicts the pandemic will cause the deepest recession since the financial crisis, with unemployment more than doubling, after businesses had to temporarily close as a result of lockdown restrictions and cutting costs to preserve cash.
The Office for Budget Responsibility estimates up to 2.1m people could lose their jobs in the second quarter, and data from the Department for Work and Pensions showed 950,000 people applied for universal credit in the second half of March.
The CEBR calculates that the biggest increase in unemployment will be among the lowest-paid workers, and estimates benefits claims will only go some way towards replacing disposable income.
The consultancy estimates that the cost to households could have been twice as bad as they have calculated if the government had not implemented the furlough wage-subsidy programme. The Treasury has agreed to cover 80% of the wages of workers up to a maximum of £2,500 per month to prevent them being laid off by their employers. In the majority of cases workers have seen a 20% fall in their earnings.
The government has extended the scheme until the end of June, following the decision to extend the lockdown for a further three weeks.
The Resolution Foundation thinktank calculates that the coronavirus job retention scheme (CJRS) will cost the exchequer £40bn in its initial March-to-May phase, because of the large number of private firms taking advantage of it.
Once the government ends the lockdown and begins to ease restrictions on the economy, the CEBR is calling politicians to take further measures “to put cash into peoples pockets” to kickstart the economy. Among the measures it proposes are a temporary reduction in VAT, or stamp duty exemptions.