Brexit Heartlands Pay the Highest Price for Coronavirus

(Bloomberg) -- The Brexit-supporting regions that propelled Prime Minister Boris Johnson into power are now being disproportionately hit by coronavirus and will bear the brunt of the economic fallout. 

Outside London, the northwest and northeast of England are experiencing the highest death rates. The “Red Wall” of traditionally Labour-voting districts that defected to Johnson’s Conservatives is also set to face a downturn twice as profound as the richest areas mainly around London.

The U.K. has recorded the most deaths after the U.S. and is likely headed for the deepest recession of any of the world’s largest economies. Already facing criticism for his handling of the pandemic, Johnson is at risk of compounding the economic damage from the virus by failing to secure a trade deal with the European Union by the end of the year—something that would spell pain for businesses in the same districts he promised to “level up” after Brexit.

The problem is that Britain had taken longer than many other advanced economies to recover from the global financial crisis amid the deepest budget cuts of the postwar era. The U.K. trailed behind Canada, Germany, France and the U.S. in returning to pre-crisis levels of output, according to data compiled by Bloomberg Economics.

The country is also enduring the worst levels of productivity since the Industrial Revolution. That’s put the onus on the government to come good on promises to invest heavily in deprived regions, and make sure there’s a new trade accord in place with the EU to avoid tariffs and customs checks from next year.

“The stakes are very high, particularly where you’ve got places that have taken a big economic shock from Covid-19 on top of a history of regional inequalities,” Anna Round, a senior research fellow at think tank IPPR North, said by phone from the northeast city of Newcastle. “There are areas in the north that are going to need particular measures in the recovery.”

Many of the areas that have struggled are dependent on industries that have been affected most by the crisis including aerospace, tourism and hospitality, and construction.

The pandemic has exacerbated inequalities in the U.K.  Chancellor of the Exchequer Rishi Sunak’s promise to rejuvenate left-behind areas has been temporarily put on hold as the government turns its attention to providing emergency stimulus.

Residents in electoral districts that saw the biggest swings to the Tories have seen sharp increases of people seeking jobless aid.

The U.K. is already more regionally divided in terms of productivity, income and health than any comparable economy. Even before the pandemic, life expectancy was lower in northern England. Now, death rates from coronavirus are higher in deprived areas, many of which are in the north.

One key to fostering longer-term recovery will be infrastructure spending, said Liz Martins, an economist at HSBC. The question is whether the government will double down on the “leveling up” agenda and create jobs should unemployment jump. 

“The disproportionate hit makes it more urgent than ever,” said Martins. “The worry is that the government scales back its former plans because of all the unexpected spending it has had to do to cushion the blow from the lockdown.”

©2020 Bloomberg L.P.