This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of the United Kingdom were reviewed by the Committee on 8 September 2020. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 28 September 2020.The Secretariat’s draft report was prepared for the Committee by Annabelle Mourougane, with contributions from Mark Baker, Tim Bulman, Andres Fuentes and Jon Pareliussen, under the supervision of Sebastian Barnes. Statistical research assistance was provided by Eun Jung Kim and editorial assistance by Michelle Ortiz. The previous Survey of the United Kingdom was issued in October 2017.Information about the latest as well as previous Surveys and more information about how Surveys are prepared is available at http://www.oecd.org/eco/surveys.

Like many countries, the United Kingdom has been hit severely by the COVID-19 outbreak. A strict lockdown, was essential to contain the pandemic but halted activity in many key sectors. While restrictions have eased, the country now faces a prolonged period of disruption to activity and jobs, which risks exacerbating pre-existing weak productivity growth, inequalities, child poverty and regional disparities (Figure 1). On-going measures to limit a second wave of infections will need to be carefully calibrated to manage the economic impact. The country started from a position of relatively high well-being on many dimensions. But productivity and investment growth have been weak in recent years and an ambitious agenda of reforms will be key to a sustainable recovery. Leaving the EU Single Market, in which the economy is deeply integrated, creates new economic challenges. Decisions made now about management of the COVID-19 crisis and future trade relationships will have a lasting impact on the country’s economic trajectory for the years to come.

Like many countries, the United Kingdom has been hit hard by the outbreak of COVID-19 and the measures taken to contain the pandemic have triggered the most severe fall in output since the 1920s (Figure 1.1). As the public health situation improves, the economic consequences will come to the fore. While some activities are picking up as restrictions ease, overall demand is expected to recover only gradually and unemployment will increase and remain high for some time. The service sectors, particularly those involving face-to-face interactions, bore the brunt of the COVID-19 shock, affecting many lower-skilled and more vulnerable workers. A rapid and massive emergency policy response, including extra funding to the health system and massive support to workers and firms, helped steady the economy. Policies moved to a second phase since July with the Plan for Jobs and the Winter Economic Plan, winding down some emergency measures, extending some support and introducing new measures focused on buttressing demand and jobs. A sustained and strong recovery will depend heavily on the resilience of the economy and the effectiveness of Testing, Tracking and Tracing (TTT) measures to limit the spread of the virus until a vaccine or an effective treatment are available. Fostering productivity growth in the service sectors, which has been flat-lining since the financial crisis and is lagging behind its main trading partners, will be key to support a long-lasting and sustainable recovery and deliver prosperity for all.

The United Kingdom has been among the most affected OECD economies by the COVID-19 crisis, reflecting the high share of services in output and its integration in the world economy. Productivity growth in the United Kingdom has consistently underperformed relative to expectations and was more disappointing than in most other OECD economies since at least the global financial crisis. Sluggish productivity growth in the service sectors was the main factor behind this weak performance. Raising productivity will help to sustain employment and wages but will require a broad range of policies.Keeping low barriers to trade and competition in the UK service sectors will create a supportive environment for strong productivity performance. Prioritising digital infrastructure in the allocation of the planned increase in public investment is expected to bring large productivity dividends. Reviewing the system of support to small firms in the light of the COVID-19 crisis will help to re-prioritise resource towards young innovative firms. Further increasing public spending on training to develop the digital skills of low-qualified workers, which have been particularly affected by the COVID-19 crisis, will be a double-dividend policy, boosting productivity and lowering inequality.