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Brexit Meaning and Impact: The Truth About the U.K. Leaving the EU

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Brexit refers to the U.K.'s withdrawal from the European Union after voting to do so in a June 2016 referendum.

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COVID-19 affects different people in different ways. Most infected people will develop mild to moderate illness and recover without hospitalization.
Most common symptoms: Less common symptoms:

sore throat

headache

aches and pains

diarrhoea

a rash on skin, or discolouration of fingers or toes

red or irritated eyes.

Serious symptoms:

difficulty breathing or shortness of breath

loss of speech or mobility, or confusion

Seek immediate medical attention if you have serious symptoms. Always call before visiting your doctor or health facility.

People with mild symptoms who are otherwise healthy should manage their symptoms at home.

On average it takes 5-6 days from when someone is infected with the virus for symptoms to show, however it can take up to 14 days.

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Israeli-Palestinian Conflict | Global Conflict Tracker

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Learn about the world’s top hotspots with this interactive Global Conflict Tracker from the Center for Preventive Action at the Council on Foreign Relations.

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In the year and a half since Russia's full-scale invasion, Ukraine has recaptured 54 percent of occupied territory, while Russia still occupies 18 percent of the country. Ukraine's 2023 offensive has achieved minor territorial gains, but the frontlines have remained stable for almost a year. Both sides have dug in, making breakthroughs increasingly difficult, and the number of military casualties has climbed to an estimated half a million. Meanwhile, Russia continues to bombard Ukrainian cities and blockade its ports, and Ukraine has stepped up drone attacks on Russian ships and infrastructure. Since January 2022, Ukraine has received nearly $350 billion in aid, including $77 billion from the United States, though it warns of donor fatigue. Fighting and air strikes have inflicted nearly 22,000 civilian casualties, while 5.1 million people are internally displaced, and 6.2 million have fled Ukraine. 17.6 million people need humanitarian assistance.

Armed conflict in eastern Ukraine erupted in early 2014 following Russia's annexation of Crimea. The previous year, protests in Ukraine's capital, Kyiv, against Ukrainian President Viktor Yanukovych's decision to reject a deal for greater economic integration with the European Union (EU) were met with a violent crackdown by state security forces. The protests widened, escalating the conflict, and President Yanukovych fled the country in February 2014.

One month later, in March 2014, Russian troops took control of the Ukrainian region of Crimea. Russian President Vladimir Putin cited the need to protect the rights of Russian citizens and Russian speakers in Crimea and southeast Ukraine. Russia then formally annexed the peninsula after Crimeans voted to join the Russian Federation in a disputed local referendum. The crisis heightened ethnic divisions, and two months later, pro-Russian separatists in the eastern Ukrainian regions of Donetsk and Luhansk held their own independence referendums.

Armed conflict in the regions quickly broke out between Russian-backed forces and the Ukrainian military. Russia denied military involvement, but both Ukraine and the North Atlantic Treaty Organization (NATO) reported the buildup of Russian troops and military equipment near Donetsk and Russian cross-border shelling immediately following Crimea's annexation. The conflict transitioned to an active stalemate, with regular shelling and skirmishes occurring along frontlines separating Russian- and Ukrainian-controlled eastern border regions.

Beginning in February 2015, France, Germany, Russia, and Ukraine attempted to kickstart negotiations to bring an end to the violence through the Minsk Accords. The agreement framework included provisions for a ceasefire, withdrawal of heavy weaponry, and full Ukrainian government control throughout the conflict zone. Efforts to reach a diplomatic settlement and satisfactory resolution, however, were largely unsuccessful.

In April 2016, NATO announced the deployment of four battalions to Eastern Europe, rotating troops through Estonia, Latvia, Lithuania, and Poland to deter possible future Russian aggression elsewhere on the continent, particularly in the Baltics. In September 2017, the United States also deployed two U.S. Army tank brigades to Poland to further bolster NATO's presence in the region.

In January 2018, the United States imposed new sanctions on twenty-one individuals-including a number of Russian officials-and nine companies linked to the conflict in eastern Ukraine. In March 2018, the U.S. Department of State approved the sale of anti-tank weapons to Ukraine, the first sale of lethal weaponry since the conflict began. In October 2018, Ukraine joined the United States and seven other NATO countries in a series of large-scale air exercises in western Ukraine. The exercises came after Russia held its own annual military exercises in September 2018, the largest since the fall of the Soviet Union.

In October 2021, months of intelligence gathering and observations of Russian troop movements, force build-up, and military contingency financing culminated in a White House briefing with U.S. intelligence, military, and diplomatic leaders on a near-certain mass-scale Russian invasion of Ukraine. The only remaining questions were when the attack would take place and whether the United States would be able to convince allies to act preemptively. Both were answered on February 24, 2022, when Russian forces invaded a largely unprepared Ukraine after Russian President Vladimir Putin authorized a " special military operation " against the country. In his statement, Putin claimed that the goal of the operation was to demilitarize and denazify Ukraine and end the alleged genocide of Russians in Ukrainian territory.

In the days and weeks leading up to the invasion, the Joe Biden administration made the unconventional decision to reduce information-sharing constraints and allow for the broader dissemination of intelligence and findings, both with allies-including Ukraine-and publicly. The goal of this strategy was to bolster allied defenses and dissuade Russia from taking aggressive action. Commercial satellite imagery, social media posts, and published intelligence from November and December 2021 showed armor, missiles, and other heavy weaponry moving toward Ukraine with no official explanation from the Kremlin. By the end of 2021, more than one hundred thousand Russian troops were in place near the Russia-Ukraine border, with U.S. intelligence officials warning of a Russian invasion in early 2022. In mid-December 2021, Russia's foreign ministry called on the United States and NATO to cease military activity in Eastern Europe and Central Asia, commit to no further NATO expansion toward Russia, and prevent Ukraine from joining NATO in the future. The United States and other NATO allies rejected these demands and threatened to impose severe economic sanctions if Russia took aggressive action against Ukraine.

In early February 2022, satellite imagery showed the largest deployment of Russian troops to its border with Belarus since the end of the Cold War. Negotiations between the United States, Russia, and European powers-including France and Germany-failed to bring about a resolution. In late February 2022, the United States warned that Russia intended to invade Ukraine, citing Russia's growing military presence at the Russia-Ukraine border. President Putin then ordered troops to Luhansk and Donetsk, claiming the troops served a "peacekeeping" function. The United States responded by imposing sanctions on the regions and the Nord Stream 2 gas pipeline a few days later. Nevertheless, just prior to the invasion, U.S. and Ukrainian leaders remained at odds regarding the nature and likelihood of an armed Russian threat, with Ukrainian officials playing down the possibility of an incursion and delaying the mobilization of their troops and reserve forces.

Since the summer of 2022, fighting has largely been confined to Ukraine's east and south, with Russian cruise missiles, bombs, cluster munitions, and thermobaric weapons devastating port cities along the Black Sea and the Sea of Azov. The Russian seizure of several Ukrainian ports and subsequent blockade of Ukrainian food exports compounded an already acute global food crisis further exacerbated by climate change, inflation, and supply chain havoc. Prior to the conflict, Ukraine had been the largest supplier of commodities to the World Food Program (WFP), which provides food assistance to vulnerable populations. In July, Russia and Ukraine signed an agreement to free more than twenty million tons of grain from Russian-controlled Ukrainian ports. The first grain shipments to leave Ukraine since the Russian invasion departed from Odesa on August 1, 2022; they arrived in Russian-allied Syria on August 15, although their originally presumed destination had been Lebanon. On October 29, Russia suspended the grain deal in response to an alleged Ukrainian attack on Russian naval forces, which Ukraine called a "false pretext." Nonetheless, Russia did not enforce the blockade when Ukraine defiantly continued shipments, and Turkey quickly negotiated Russia's return to the deal, which has been consistently extended to date.

The current conflict has severely strained U.S.-Russia relations and increased the risk of a wider European conflict. Tensions are likely to increase between Russia and neighboring NATO member countries that would likely involve the United States, due to alliance security commitments. The conflict will also have broader ramifications for future cooperation on critical issues like arms control; cybersecurity; nuclear nonproliferation; global economic stability; energy security; counterterrorism; and political solutions in Syria, Libya, and elsewhere. Additionally, Russia's isolation has not only destabilized global energy and resource markets but also pushed the country to seek stronger strategic ties with those states (e.g., China) still willing to partner with it, largely in opposition to the West. The war has also compounded other global crises, with military operations and violence hindering the delivery and distribution of much-needed aid, including food, and exacerbating an already severe shortage of available global humanitarian assistance and resources.

On June 6, 2023, a breach in the Nova Kakhovka dam, sixty kilometers north of Kherson on the Dnipro River, caused severe flooding in southwest Ukraine, affecting over eighty thousand people who live in the riparian zone. Ukraine accuses Russia of blowing up the dam to prevent a southeastern offensive, while Russia claims Ukraine carried out the attack to deprive Crimea of water and distract from the battlefront. The Ukrainian dam operator says it has been destroyed beyond repair. Furthermore, the draining of the reservoir raises concerns over the availability of water to cool the Zaporizhzhia nuclear plant reactors, though the cooling ponds are reportedly stable.

In June 2023, Ukraine launched a much-anticipated counteroffensive, attempting to break through Russian defenses eastward in Donetsk province, including around Bakhmut, and southward in Zaporizhzhia province, which forms the " land corridor" to Crimea. Zelenskyy said Ukraine aims to liberate 18 percent of occupied territory in the current phase, but Ukrainian forces have met stiff resistance and suffered heavy losses against hardened Russian defensive positions, air superiority, and minefields. Nonetheless, Ukraine has made small gains on the ground and has stepped up attacks on bridges to Crimea, Russian ships, and buildings in Moscow.

Since February 24, 2022, the United States has committed nearly forty billion dollars in security assistance to Ukraine, including nineteen billion in immediate military aid and sixteen billion in humanitarian aid. Additionally, in early 2023 the Biden administration approved the provision of increasingly advanced weaponry, such as the Patriot air defense system, crucial for defending against Russian airstrikes, and top-tier battle tanks. The United States has also dramatically increased U.S. troop presence in Europe, bringing the total to more than one hundred thousand. On June 8, 2023, in a joint press conference with British Prime Minister Rishi Sunak, Biden said he believes the United States has the funds to "support Ukraine as long as it takes." A day later, the Department of Defense announced another 2.1 billion dollars in military aid. While the United Nations, Group of Seven member states, EU, and others continue to condemn Russia's actions and support Ukrainian forces, Russia has turned to countries like North Korea and Iran for intelligence and military equipment and continues to sell discounted oil and gas to India and China, among others.

By June 2023, the UN Human Rights Office recorded nearly nine thousand civilian deaths and over fifteen thousand civilian injuries since Russia's full-scale military invasion of Ukraine on February 24, 2022. The violence has internally displaced nearly six million people and forced nearly eight million to flee to neighboring countries, including Moldova and Poland, a NATO country where the United States and other allies are helping to accommodate the influx of refugees.

On June 23, Putin faced a major internal challenge when Yevgeniy Prigozhin released a video claiming the Russian Ministry of Defense (MoD) shelled Wagner forces and announced a "march of justice" to unseat the military leadership. The mutiny follows months of tensions with the MoD, which Prigozhin often insulted and accused of not supplying adequate munitions, and an attempt by the MoD to reign in Wagner fighters. Wagner forces quickly occupied Rostov-on-Don and seized Russia's southern military headquarters. Wagner convoys then advanced more than halfway to Moscow; Putin declared the march " treason" and offered amnesty for soldiers who stopped. On June 24, Belarussian President Alexander Lukashenko negotiated for Wagner soldiers to return to their bases and for Prigozhin to move to Belarus. Prigozhin's true aims remain unknown, but the incident left both the Wagner Group and Putin weakened.

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War in Ukraine | Global Conflict Tracker

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Understand the conflict in Ukraine since it erupted in 2014 and track the latest developments around Russian and U.S. involvement on the Global Conflict Tracker from the Center for Preventive Action.

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Fast fashion

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Adam Smith was an 18th-century Scottish economist, philosopher, and author who is considered the father of modern economics. Smith argued against mercantilism and was a major proponent of laissez-faire economic policies. In his first book, The Theory of Moral Sentiments, Smith proposed the idea of an invisible hand-the tendency of free markets to regulate themselves using competition, supply and demand, and self-interest.

Smith is also known for creating the concept of gross domestic product (GDP) and for his theory of compensating wage differentials. According to this theory, dangerous or undesirable jobs tend to pay higher wages to attract workers to these positions. Smith's most notable contribution to the field of economics was his 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations.

Key Takeaways

The recorded history of Smith's life begins at his baptism on June 5, 1723, in Kirkcaldy, Scotland; his exact birthdate is undocumented, but he was raised by his mother (Margaret Douglas) after his father's (Adam Smith) death (date unknown). He attended the University of Glasgow at the age of 13 and attended Balliol College at Oxford University, where he studied European literature. He returned home and delivered a series of well-received lectures at Glasgow University, which appointed him first as the chair of logic in 1751 and then chair of moral philosophy in 1752.

After returning to Scotland, Smith held a series of public lectures at the University of Edinburgh. The success of his lecture series helped him earn a professorship at Glasgow University in 1751. He eventually earned the position of Chair of Moral Philosophy. During his years spent teaching and working at Glasgow, Smith worked on getting some of his lectures published. His book The Theory of Moral Sentiments was eventually published in 1759.

Smith moved to France in 1763 to accept a more remunerative position as a personal tutor to the stepson of Charles Townshend, an amateur economist and the future Chancellor of the Exchequer. During his time in France, Smith counted the philosophers David Hume and Voltaire, and Benjamin Franklin as contemporaries.

Notable Accomplishments and The Wealth of Nations

During his years spent teaching and working at Glasgow, Smith worked on getting some of his lectures published. His book The Theory of Moral Sentiments was eventually published in 1759. Smith published his most important work, An Inquiry into the Nature and Causes of the Wealth of Nations (shortened to "The Wealth of Nations"), in 1776 after returning from France and retiring to his birthplace of Kirkcaldy, Scotland.

In his book, Smith popularized many of the ideas that form the basis for classical economics. Other economists built on Smith's work to solidify classical economic theory, the dominant school of economic thought through the Great Depression. Smith's ideas are evident in the work of David Ricardo and Karl Marx in the 19th century and John Maynard Keynes and Milton Friedman in the twentieth century.

Smith's work discusses the evolution of human society from a hunter stage without property rights or fixed residences to nomadic agriculture with shifting residences. The next stage is a feudal society where laws and property rights are established to protect privileged classes. Finally, modern society is characterized by laissez-faire or free markets, where new institutions are established to conduct market transactions. Smith's work addresses the idea of the "economic man," defined as someone who pursues their self-interested goals and interests, which impacts their behavior in economics.

The Philosophy of Free Markets

The philosophy of free markets emphasizes minimizing the role of government intervention and taxation in the free markets. Although Smith advocated for a limited government, he did see the government as responsible for the education and defense sectors of a country.

From Smith comes the idea of the "invisible hand" that guides the forces of supply and demand in an economy. According to this theory, by looking out for themselves, every person inadvertently helps create the best outcome for all.

A hypothetical butcher, brewer, and baker in this economy hope to make money by selling products that people want to buy. If they are effective in meeting the needs of their customers, they will enjoy financial rewards. While they are engaging in enterprise to earn money, they also provide products that people want. Smith argued that this kind of system creates wealth for the butcher, brewer, and baker and creates wealth for the entire nation.

The Invisible Hand Theory

According to Smith's beliefs and theory, a wealthy nation is one that is populated with citizens working productively to better themselves and address their financial needs. In this kind of economy, according to Smith, a man would invest his wealth in the enterprise most likely to help him earn the highest return for a given risk level. The invisible-hand theory is often presented in terms of a natural phenomenon that guides free markets and capitalism in the direction of efficiency, through supply and demand and competition for scarce resources, rather than as something that results in the well-being of individuals.

For Smith, an institutional framework is necessary to steer humans toward productive pursuits that are beneficial to society. This framework consists of institutions like a justice system designed to protect and promote free and fair competition. However, there must be competition undergirding this framework, and competition is the "desire that comes with us from the womb, and never leaves us, until we go into the grave."

Wealth and Production of Goods

The ideas promoted by The Wealth of Nations generated international attention and were a motivating factor in the evolution from land-based wealth to wealth created by assembly-line production methods made possible by the division of labor. Smith used the example of the labor required to make a pin to illustrate the effectiveness of this method.

If one person were to undertake the 18 steps required to complete the tasks, they could only make a handful of pins per week. However, if the 18 tasks were completed in assembly-line fashion by 10 individuals, production would jump to thousands of pins per week. Smith argued that the division of labor and resulting specialization produces prosperity.

Gross Domestic Product (GDP)

The ideas in The Wealth of Nations provided the genesis for the concept of gross domestic product (GDP) and transformed the importing and exporting business. Before the publication of The Wealth of Nations, countries declared their wealth based on the value of their gold and silver deposits.

However, Smith was highly critical of mercantilism; he argued that countries should be evaluated based on their levels of production and commerce. This concept was the basis for creating the GDP metric for measuring a nation's prosperity.

When The Wealth of Nations was published, many countries were hesitant to trade with other countries. Smith argued that a free exchange should be created because both countries are better off from the exchange.

As a result of this shift in attitudes toward trading, there was an increase in imports and exports. Smith also argued for legislation that would make trading as easy as possible.

Smith's most prominent ideas-the "invisible hand" and division of labor-are now foundational economic theories. His theories on economics continue to live on in the 21st century in modern economic theory.

Smith was a proponent of the belief that the labor of the poor is a key measure of how an economy performs, but Smith was known for being concerned with inequality itself. Karl Marx, a political economist and social philosopher like Smith, was greatly inspired by The Wealth of Nations and built greatly upon Smith's works. However, while Smith wrote that capitalism was an ideal state for economic growth, Marx believed that capitalism led to greed and inequality among citizens, and would ultimately lead itself to collapse.

Adam Smith's writings influence economics today as he believed wealth is created via labor, and self-interest spurs people to use their resources to earn money. Smith's theories that economies thrive when competition, capitalism, and a free market, are alive and well in the 21st century.

Honors and Awards

In 2007, the Bank of England placed Smith's image on the £20 note. He was a fellow of the Royal Society of Arts, and several buildings in Scotland are named after him. An award in his name, the Adam Smith Award is the highest honor bestowed by The Association of Private Enterprise Education. The University of Glasgow has a chair, library, research center, and building in his name.

Why Is Adam Smith Called the Father of Economics?

Adam Smith is called the "father of economics" because of his theories on capitalism, free markets, and supply and demand.

What Books Did Adam Smith Write?

Adam Smith wrote The Wealth of Nations, The Theory of Moral Sentiments, Lectures on Justice, Police, Revenue, and Arms, and Essays on Philosophical Subjects.

What Were Adam Smith's 3 Laws of Economics?

The law of self-interest, the law of competition, and the law of supply and demand were the three laws of economics written by Adam Smith.

The Bottom Line

Adam Smith died on July 17, 1790, at age 68, in Edinburgh, Scotland, and was buried in Canongate Kirkyard. The ideas he popularized live on in the classical school of economics and institutions like the Adam Smith Institute, Britain's leading free-market neoliberal think tank.

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Adam Smith was an 18th-century Scottish economist, philosopher, and author who is considered the father of modern economics. Smith argued against mercantilism and was a major proponent of laissez-faire economic policies. In his first book, The Theory of Moral Sentiments, Smith proposed the idea of an invisible hand-the tendency of free markets to regulate themselves using competition, supply and demand, and self-interest.

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What Is Keynesian Economics?

Keynesian economics is a macroeconomic theory of total spending in the economy and its effects on output, employment, and inflation. It was developed by British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression.

The central belief of Keynesian economics is that government intervention can stabilize the economy. Keynes' theory was the first to sharply separate the study of economic behavior and individual incentives from the study of broad aggregate variables and constructs.

Based on his theory, Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Depression. Subsequently, Keynesian economics was used to refer to the concept that optimal economic performance could be achieved-and economic slumps could be prevented-by influencing aggregate demand through economic intervention by the government. Keynesian economists believe that such intervention can achieve full employment and price stability.

Key Takeaways

Understanding Keynesian Economics

Keynesian economics represented a new way of looking at spending, output, and inflation. Previously, what Keynes dubbed classical economic thinking held that cyclical swings in employment and economic output create profit opportunities that individuals and entrepreneurs would have an incentive to pursue, and in so doing, they correct the imbalances in the economy.

According to Keynes' construction of this so-called classical theory, if aggregate demand in the economy fell, the resulting weakness in production and jobs would precipitate a decline in prices and wages. A lower level of inflation and wages would induce employers to make capital investments and employ more people, stimulating employment and restoring economic growth. Keynes believed, however, that the depth and persistence of the Great Depression severely tested this hypothesis.

In his book The General Theory of Employment, Interest and Money and other works, Keynes argued against his construction of classical theory, asserting that, during recessions, business pessimism and certain characteristics of market economies would exacerbate economic weakness and cause aggregate demand to plunge further.

For example, Keynesian economics disputes the notion held by some economists that lower wages can restore full employment because labor demand curves slope downward like any other normal demand curve.

Similarly, poor business conditions may cause companies to reduce capital investment rather than take advantage of lower prices to invest in new plants and equipment. This also would have the effect of reducing overall expenditures and employment.

Keynesian Economics and the Great Depression

Keynesian economics is sometimes referred to as "depression economics," as Keynes' General Theory was written during a time of deep depression-not only in his native United Kingdom, but worldwide. The famous 1936 book was informed by Keynes' understanding of events arising during the Great Depression, which Keynes believed could not be explained by classical economic theory as he portrayed it in his book.

Other economists had argued that, in the wake of any widespread downturn in the economy, businesses and investors taking advantage of lower input prices in pursuit of their own self-interest would return output and prices to a state of equilibrium, unless otherwise prevented from doing so. Keynes believed that the Great Depression seemed to counter this theory.

Output was low, and unemployment remained high during this time. The Great Depression inspired Keynes to think differently about the nature of the economy. From these theories, he established real-world applications that could have implications for a society in economic crisis.

Keynes rejected the idea that the economy would return to a natural state of equilibrium. Instead, he argued that, once an economic downturn sets in, for whatever reason, the fear and gloom that it engenders among businesses and investors will tend to become self-fulfilling and can lead to a sustained period of depressed economic activity and unemployment.

In response to this, Keynes advocated a countercyclical fiscal policy in which, during periods of economic woe, the government should undertake deficit spending to make up for the decline in investment and boost consumer spending to stabilize aggregate demand.

Keynes was highly critical of the British government at the time. The government greatly increased welfare spending and raised taxes to balance the national books. Keynes said that this would not encourage people to spend their money, thereby leaving the economy unstimulated and unable to recover and return to a successful state.

Keynes also criticized the idea of excessive saving, unless it was for a specific purpose such as retirement or education. He saw it as dangerous for the economy because the more money sitting stagnant, the less money is in the economy stimulating growth. This was another of Keynes' theories geared toward preventing deep economic depressions.

Many economists have criticized Keynes' approach. They argue that businesses responding to economic incentives will tend to return the economy to a state of equilibrium unless the government prevents them from doing so by interfering with prices and wages, making it appear as though the market is self-regulating.

On the other hand, Keynes, who was writing while the world was mired in a period of deep economic depression, was not as optimistic about the natural equilibrium of the market. He believed that the government was in a better position than market forces when it came to creating a robust economy.

Keynesian Economics and Fiscal Policy

The multiplier effect, developed by Keynes' student Richard Kahn, is one of the chief components of Keynesian countercyclical fiscal policy. According to Keynes' theory of fiscal stimulus, an injection of government spending eventually leads to added business activity and even more spending. This theory proposes that spending boosts aggregate output and generates more income. If workers are willing to spend their extra income, the resulting growth in gross domestic product (GDP) could be even greater than the initial stimulus amount.

The magnitude of the Keynesian multiplier is directly related to the marginal propensity to consume. Its concept is simple. Spending from one consumer becomes income for a business that then spends on equipment, worker wages, energy, materials, purchased services, taxes, and investor returns. That worker's income can then be spent, and the cycle continues. Keynes and his followers believed that individuals should save less and spend more, raising their marginal propensity to consume to effect full employment and economic growth.

In this theory, one dollar spent in fiscal stimulus eventually creates more than one dollar in growth. This appeared to be a coup for government economists, who could provide justification for politically popular spending projects on a national scale.

This theory was the dominant paradigm in academic economics for decades. Eventually, other economists, such as Milton Friedman and Murray Rothbard, showed that the Keynesian model misrepresented the relationship between savings, investment, and economic growth. Many economists still rely on multiplier-generated models, although most acknowledge that fiscal stimulus is far less effective than the original multiplier model suggests.

The fiscal multiplier commonly associated with the Keynesian theory is one of two broad multipliers in economics. The other multiplier is known as the money multiplier. This multiplier refers to the money creation process that results from a system of fractional reserve banking. The money multiplier is less controversial than its Keynesian fiscal counterpart.

Keynesian Economics and Monetary Policy

Keynesian economics focus on demand-side solutions to recessionary periods. The intervention of government in economic processes is an important part of the Keynesian arsenal for battling unemployment, underemployment, and low economic demand. The emphasis on direct government intervention in the economy often places Keynesian theorists at odds with those who argue for limited government involvement in the markets.

Wages and employment, Keynesians argue, are slower to respond to the needs of the market and require government intervention to stay on track. Furthermore, they argue, prices do not react quickly and change only gradually when monetary policy interventions are made, giving rise to a branch of Keynesian economics known as monetarism.

If prices are slow to change, this makes it possible to use money supply as a tool and change interest rates to encourage borrowing and lending. Lowering interest rates is one way that governments can meaningfully intervene in economic systems, thereby encouraging consumption and investment spending. Short-term demand increases initiated by interest rate cuts reinvigorate the economic system and restore employment and demand for services. The new economic activity then feeds continued growth and employment.

Without intervention, Keynesian theorists believe, this cycle is disrupted, and market growth becomes more unstable and prone to excessive fluctuation. Keeping interest rates low is an attempt to stimulate the economic cycle by encouraging businesses and individuals to borrow more money. They then spend the money that they borrow. This new spending stimulates the economy. Lowering interest rates, however, does not always lead directly to economic improvement.

Monetarist economists focus on managing the money supply and lower interest rates as a solution to economic woes, but they generally try to avoid the zero-bound problem. As interest rates approach zero, stimulating the economy by lowering interest rates becomes less effective because it reduces the incentive to invest, rather than simply hold money in cash or close substitutes like short-term Treasurys. Interest rate manipulation may no longer be enough to generate new economic activity if it can't spur investment, and the attempt at generating economic recovery may stall completely. This is a type of liquidity trap.

When lowering interest rates fails to deliver results, Keynesian economists argue that other strategies must be employed, primarily fiscal policy. Other interventionist policies include direct control of the labor supply, changing tax rates to increase or decrease the money supply indirectly, changing monetary policy, or placing controls on the supply of goods and services until employment and demand are restored.

Keynesian Economics and the 2007-08 Financial Crisis

In response to the Great Recession and financial crisis of 2007-2008, the Congress and Executive branch undertook several measures that drew from Keynesian economic theory. The federal government bailed out debt-ridden companies in several industries including banks, insurers, and automakers. It also took into conservatorship Fannie Mae and Freddie Mac, the two major market makers and guarantors of mortgages and home loans.

In 2009, President Obama signed the American Recovery and Reinvestment Act, an $831-billion government stimulus package designed to save existing jobs and create new ones. It included tax cuts/credits and unemployment benefits for families; it also earmarked expenditures for healthcare, infrastructure, and education.

These stimulus measures and federal interventions helped America's economy recover, preventing the Great Recession from becoming another full-blown depression.

COVID-19 Stimulus

Who Was John Maynard Keynes?

John Maynard Keynes (1883-1946) was a British economist, best known as the founder of Keynesian economics and the father of modern macroeconomics. Keynes studied at one of the most elite schools in England, the King's College at Cambridge University, earning an undergraduate degree in mathematics from the latter in 1905. He excelled at math but received almost no formal training in economics.

How Does Keynesian Economics Differ From Classical Economics?

According to Keynes, classical economics held that swings in employment and economic output create profit opportunities that individuals and entrepreneurs have an incentive to pursue, eventually correcting imbalances in the economy. In contrast, Keynes argued that, during recessions, business pessimism and certain characteristics of market economies would exacerbate economic weakness and cause aggregate demand to plunge further. Keynesian economics holds that, during periods of economic woe, governments should undertake deficit spending to make up for the decline in investment and boost consumer spending to stabilize aggregate demand.

What Is Monetarism?

Monetarism is a macroeconomic theory stating that governments can foster economic stability by targeting the growth rate of the money supply. Closely associated with economist Milton Friedman, monetarism is a branch of Keynesian economics that emphasizes the use of monetary policy over fiscal policy to manage aggregate demand, which contrasts with the theories of most Keynesian economists.

The Bottom Line

John Maynard Keynes and Keynesian economics were revolutionary in the 1930s and did much to shape post-World War II economies in the mid-20th century. His theories came under attack in the 1970s, saw a resurgence in the 2000s, and are still debated today. Keynesian economics, recognizes the role of government finance in sparking aggregate demand. Federal spending and tax cuts leave more money in peoples' pockets, which can stimulate demand and investment. Unlike free market economists, Keynesian economics welcomes limited government intervention and stimulus during times of recession.

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Keynesian Economics Theory: Definition and How It's Used

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Keynesian economics comprise a theory of total spending in the economy and its effects on output and inflation, as developed by John Maynard Keynes.

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Climate change is a global issue and concern around the world. Its impact is being felt now with more to come in the near future if we cannot limit greenhouse gases. All eyes will be on the COP26 global summit which will focus on slowing the rate at which the planet is warming.

Today, the UK is at the forefront of a new, green industrial revolution. Research and innovation continue to underpin the UK's commitment to:

· Achieving a net zero economy by 2050
· Respond to the challenges of climate change
· Live more sustainably

Across UKRI, we invest in the cutting-edge research and innovation essential to understanding and tackling the environmental sustainability challenges that we face. With projects ranging from green transportation and agricultural transformation, to investigating our changing planet and future energy systems, researchers and innovators are working hard to support the government's ambitious target of reaching net zero.

To find out more about these projects, and the people behind them, visit our 'Responding to Climate Change' pages.

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A brief history of climate change discoveries

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Climate change is a global issue and concern around the world. Its impact is being felt now with more to come in the near future if we cannot limit greenhouse gases. All eyes will be on the COP26 global summit which will focus on slowing the rate at which the planet is warming.

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Cost pressures have been apparent since mid-2021, driven by a range of issues from depleted gas supplies in Europe to semiconductor shortages in Asia. Impacts from the pandemic alongside disruptions to global supply chains also increased prices.

The main contribution to higher prices has been the Russian invasion of Ukraine. Many international companies have permanently ceased operations in Russia either to comply with economic sanctions or due to reputational risk. The war has led to a shortage of Ukrainian exports such as essential car parts which has pushed up prices of second hand cars. Agricultural commodities, such as grain and sunflower oil, are the majority of Ukrainian exports, the disruption of which has contributed to increases in global food prices.

The biggest impact has been on gas prices, as Russia has dramatically reduced gas sales to Europe. Although the UK imports only around 13% of its total fuel (oil, gas, LNG, electricity) from Russia, it is still vulnerable to any disruption to the supply of energy to the EU, which is more reliant on Russia for its energy. Due to the integration of energy markets, UK and EU gas and electricity prices move together. The recent announcement by the European Commission to phase out EU imports of Russian oil will likely push up prices in other markets the UK uses, such as Norway and Qatar. Gas is an important source of energy in the UK: nearly 80% of households in England are heated by mains gas and a third of electricity is generated in gas power stations.

Are incomes increasing as quickly as prices?

The OBR expects nominal earnings to increase by 5% over 2023 but again inflation is expected to erode these earnings despite its anticipated downward turn. Real household disposable income (RHDI), which measures total household earnings (such as wages and benefits) after tax and accounting for inflation, fell by 2.5% in the 2022 calendar year and is expected to fall by another 2.6% in 2023.

Households receiving a part of their income from the government, through working age benefits or the state pension, see their incomes uprated each year. These were uprated by 10.1% in April 2023 as this was the CPI inflation rate last September, which is the usual reference month used to determine annual uprating. In April 2022, they increased by only 3.1% as that was the inflation rate the previous September.

Alongside the EPG and previous government measures, the one-off Cost of Living Payments 2023/24 are offering more targeted measures to support the most vulnerable. This approach risks leaving some gaps and cliff-edges in support: the means-tested £900 government support is fully available to those entitled to it but anyone just above the threshold receives nothing.

Which households are worst affected by the cost of living crisis?

Overall, the worst-affected households are those on low incomes with higher-than-average energy bills (for example if they have a large family). While these households have received additional payments from government, these are not sufficient to match the increase in energy and other costs. The energy price guarantee provides a big benefit to this group, but on average they are still worse affected by the crisis.

How long is the cost of living crisis expected to last?

By 2024, living costs should be increasing by less than household incomes as inflation rates fall. But prices will remain high: inflation measures the change in prices over a 12-month period, and falling inflation only means prices are rising less quickly, not that they are falling.

Based on the latest forecasts, it will take a long time for household incomes to recover to their previous level in real terms. RHDI per person, a measure of living standards will not return to its 2021/22 level until 2027/28. And in that year living standards will still be below pre-pandemic levels in real terms, meaning that the effects of the cost of living crisis are likely to be felt for a long time.

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Cost of living crisis | Institute for Government

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How high is inflation? What prices are increasing fastest? Why have prices increased so rapidly?

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Cost of Living Crisis: What is it and when will it end?

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Price increases are slowing down, but is it enough to bring the crisis to an end?

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Scot Case VP, CSR & Sustainability; Executive Director, Center for Retail Sustainability July 15, 2024

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Climate-proofing retail: How weather and climate affect retail sales

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New report offers an in-depth look at the ways retailers’ business operations are impacted.

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1. Main points

In 2020, total retail sales volumes fell by 1.9% compared with 2019, the largest annual fall on record.

The impact on consumer retail sectors has varied with clothing and fuel volume sales seeing large falls of negative 21.5% and negative 22.2% respectively in 2020 and remain below pre-pandemic levels.

Overall, online sales rose to a record high of 33.9% as a share of all retail spending.

Insights from timely card transactions data show that the impact of England's second and third lockdowns on card spending are similar, and significantly less severe than the first lockdown.

Card transaction data also suggests that during the second and third lockdowns, English online spending increased more in response to the fall in in-store spending than during the first lockdown.

As a whole, retail sales (in volume terms) in Great Britain have recovered from the large contraction in March and April 2020 but still saw the largest annual fall on record.

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2. Retail industry in Great Britain

The retail industry is an important part of the economy, comprising almost 5.1% of UK GDP. The coronavirus (COVID-19) pandemic and the public health response have had large impacts on the UK and global economies. In particular, the retail industry has been impacted by the imposition of lockdown restrictions and social distancing, which have led to changes in the goods and services that we consume and how we consume them, with some areas of retail faring worse than others.

Policy measures introduced to contain the spread of the virus, such as public health restrictions and voluntary social distancing, had pronounced impacts on the retail industry. This included the closure of non-essential retail stores on 23 March 2020 as part of the first national lockdown that was introduced across the UK. Non-essential retailers were permitted to reopen in June with some variations across the UK nations - the earliest being in Northern Ireland (12 June) and the latest in Scotland (29 June) - although these stores were forced to shut once more as Tier 4 restrictions were introduced in certain areas across England and Scotland through autumn and a 17-day "firebreak lockdown" was introduced in Wales in late October.

The announcement of further lockdowns in England ( 5 November to 2 December and 5 January 2021 to present), as well as similar restrictions introduced across other UK nations ¹ from the end of 2020 till now has again seen the large-scale closure of non-essential retail. The impact of these restrictions has been reflected in footfall levels, in part capturing how the retail industry has been impacted in 2020.

Figure 1: The restrictions on non-essential retail have been reflected in the impact on footfall

Volume of footfall, percentage change from the same day the previous year, UK, 1 March 2020 to 24 January 2021

Source: Springboard and the Department for Business, Energy and Industrial Strategy

Notes:

The spike on Monday 24 August 2020 was caused by the comparison with 26 August 2019, which was bank holiday Monday with good weather. The bank holiday this year was a week later, on 31 August 2020.

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The impact has been reflected in the official Retail sales figures. The total volume of retail sales in Great Britain fell by 1.9% in 2020 compared with 2019, the largest fall since records began. The impact has been particularly severe for non-essential retail. Figure 2 shows that retail sales volumes started to fall sharply in March 2020, and by April total retail sales volumes were 19% lower when compared with February levels. As these lockdown restrictions eased, there was a marked increase, which may have reflected some pent-up consumer demand. However, Figure 2 also shows that this in part reflects a change in how consumers have moved to online retailing. The rising use of online shopping has eased the impact of the pandemic on the retail sector. Online sales rose rapidly following the start of the pandemic and were 60% higher in May when compared with February's level. Total retail sales volumes recovered and since July have been above pre-pandemic (February 2020) levels. The latest figures show that total retail sales volume (excluding fuel) were 5.8% higher in December when compared with February.

It's worth noting that the volumes of sales fell again by 4.1% in November in response to the introduction of a second lockdown in England. The latest estimates show that total retail sales volume grew by 0.3% in December, as there were initially some easing restrictions in early December, although this was then followed by the re-imposition of tighter restrictions to non-essential retail later in the month.

Figure 2: Retail sales started falling sharply in March in response to the pandemic hit, before recovering later in the year as restrictions were lifted, while there was also a shift towards online retailing

Value of retail sales at curent prices, seasonally adjusted, Great Britain, Index Feb 2020=100

Source: Office for National Statistics - Monthly Business Survey

Notes:

There is no available data for the sale of fuel online so fuel is excluded from all data in Figure 2.

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Notes for Retail industry in the UK and Great Britain

Similar restrictions to the lockdown introduced in England were announced across the UK throughout December: Wales (19 December to present), Scotland and Northern Ireland (26 December to present).
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3. Retail sales around the world

The impact of the COVID-19 pandemic on the retail industry has been a global phenomenon, reflecting how governments across the world have introduced policy measures to reduce the spread of the virus. Figure 3 shows retail trends in 2020 across a selection of EU and G7 countries, which shows a similar within-year profile as there was a sharp decline in April when lockdown restrictions were largely imposed. However, the extent of falls and recovery varies by countries. The Understanding international comparisons of GDP article highlights how the timing and stringency levels of these restrictions have not been uniform, which might explain some of the differences in retail figures between countries ¹.

For the EU average, retail trade started to fall from March and by April was 20% below February's level. This was more severe in France (fall of around 27%), Spain and Italy (both falling by around 33%). By June, retail trade had recovered to pre-pandemic (February 2020) levels for the EU as a whole and remained above February's level, though this was not the case for all of the EU countries, with some of the countries that saw the most severe falls remaining below their February level.

In the USA, retail sales performed relatively better, declining less than seen across the EU. Nonetheless the US still saw a sharp fall following the start of the pandemic, with April's retail trade being around 16% lower than its pre-pandemic level. By June, it was 5% above its February levels.

Figure 3: International comparisons highlight that the public health response to the pandemic has impacted upon retail sales around the world, although to varying extents

Retail trade Index, Index = 100 at February, 2020

Source: Eurostat - Turnover and volume of sales in wholesale and retail trade, OECD - Revisions Analysis Dataset

Notes:

1. Data for EU, Germany, Spain, France, Italy and UK is provided by Eurostat and is measured by index of deflated turnover of retail trade, except of motor vehicles and motorcycles.

2. Data for Canada, Japan and USA are provided by the Organisation for Economic Co-operation and Development (OECD) and are measured by index of retail trade volume.

3. There is no November data available for Canada, Japan and USA.

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The varying performance of the retail sector in different countries will likely reflect difference in the level of restrictions policies to contain the spread of the COVID-19 virus. Figure 4 shows that there is some evidence that the extent of restrictions introduced is associated with lower levels of retail sales. This is highlighted by the inverse relationship between the Retail Sales Index and the Oxford Government Response Tracker Index.

Figure 4: Observing the Oxford Government Response Tracker Index figures, there appears to be an inverse relationship with retail sales across EU and G7 countries

Value of Index of deflated turnover of retail trade, except of motor vehicles and motorcycles, Index of Retail Trade Volume, Oxford Government Response Index, 2020

Source: Eurostat - Turnover and volume of sales in wholesale and retail trade, Oxford COVID-19 Government Response Tracker

Notes:

1. For further details on the methodology to calculate the Government Stringency Index, please see Methodology for calculating indices.

2. Data for Retail Sales Index is the same as provided in Figure 3.

3. The Oxford Government Response Tracker systematically collects information on several different common policy responses that governments have taken to respond to the pandemic.

4. The Government Stringency Index is based on nine response indicators including school closures and travel bans to give a rescaled value from 0 to 100, (100= strictest response).

5. Government Stringency Index figures are provided as an average for the given month.

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Notes for: Retail sales around the world

The Oxford Government Stringency Index is based on nine response indicators, including school closures and travel bans, to give a rescaled value from 0 to 100, (100 = strictest response).
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4. Retail sales trends by retail sectors

The impact of the COVID-19 pandemic has been varied on the retail industry, reflecting the effects of voluntary and involuntary responses and the subsequent change in goods and services that we have consumed over the year. For example, there has been a sharp decline in spending on fuel, as the move to working from home and other restrictions on mobility limited the demand for fuel.

Figure 5 shows that all retail sectors experienced falls in volume sales from March 2020, except food stores and non-store retailing. The increase in food stores reflects that they were not impacted by store closure guidelines, as well as food being an essential purchase. Food stores saw strong growth in March 2020, which is likely to reflect stockpiling of essential foods due to concerns around disruptions to supply chains. In the EU, while the sales of non-food products dropped by 23.8% in April 2020 year-on-year, the sales of food, beverages and tobacco increased by 1.2%. Similarly, in the US, there were large falls in sectors such as accommodation and restaurants (PDF, 1.25MB). However, these declines were partly offset by the large rise in food and beverage store sales. Baker and others (2020) find evidence of stockpiling, followed by a reduction in spending near the end of March (PDF, 2.15MB) from household-level transaction data.

Figure 5: In December, clothing and fuel remain below their pre-pandemic level; both sectors have been hit by the pandemic and restrictions

Value of UK retail sales at current prices, by retail sector, seasonally adjusted, Great Britain, index February 2020=100

Source: Office for National Statistics - Monthly Business Survey

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Experimental faster indicators on spending on debit and credit cards help provide further insight into how restrictions have impacted on different types of consumer spending.

Figure 6 shows that in the UK spending across categories fell sharply from March 2020 with some variation in spending trends between categories throughout the rest of the year.

The spending categories are:

staples - companies that sell essential goods that households need to purchase, such as food and utilities

work-related - companies providing public transport or selling petrol

delayable - companies selling goods whose purchase could be delayed, such as clothing or furnishings

social - spending on travel and eating out

The sharpest decline was in social spending, as public health restrictions and voluntary social distancing were in effect for much of the year to varying extents. There was also a fall in work-related consumption, as there was a large shift towards working from home in response to the pandemic, in line with the official figures showing that there has been a sharp decline in spending on fuel.

Figure 6: In the week to 21 January 2021, the aggregate CHAPS-based indicator of debit and credit card purchases remained at 35% below its February 2020 average

Index February 2020 = 100, percentage change on a backward looking seven-day rolling average,13 January 2020 to 21 January 2021, non-seasonally adjusted, nominal prices, UK

Source: ONS and Bank of England calculations

Notes:

1. The value of Clearing House Automated Payment System (CHAPS) is a faster indicator which records payments received by large UK companies from their credit and debit card processors. CHAPS provides an indicator of UK companies' transactions made by customers, both via physical and online platforms. More information on the indicator is provided in a Bank of England methodology article.

2. Introduction of lockdowns and other restriction polices are expected to differ between the four UK nations.

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5. Online sales

The COVID-19 pandemic has appeared to accelerate the shift to online sales, especially with non-essential physical stores forced to close. Customers have turned to online platforms while retailers have responded by raising capacity to facilitate online shopping, click-and-collect services, and home deliveries. Figure 7 presents the overall trend for online sales, whose share of all retail spending rose sharply at the start of the pandemic. By May 2020, online sales reached a record high share of all retail spending of around 34%, climbing from 20% in February. Since then the share of online sales have fallen a little, which is likely to reflect re-opening of physical stores, though remain significantly above the pre-pandemic levels.

Another spike in online spending was noticeable following the introduction of the second lockdown in England in November, reinforcing how the closure of non-essential retail has led to a behavioural change in how we consume goods and services. The boost in online spending might also be explained by Black Friday promotions online, and consumers relying more on internet platforms for their Christmas shopping. The CBI reported that the pickup in online sales during November's lockdown was the fastest since October 2018, while growth in online sales continued above average rates in December for the third consecutive month, which signal consumers moving to online shopping from in-store purchases, as retailers and consumers continue to adapt to online shopping.

Figure 7: The share of online sales rose to a record high in May and continues to remain above pre-pandemic levels

Great Britain internet sales index: value seasonally adjusted internet sales as a proportion of all retailing, 2013 to 2020

Source: Office for National Statistics - Monthly Business Survey

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Online spending: international comparisons

Figure 8 shows online sales growth trends with selected countries (France, Germany, Spain and Italy) and the EU, which reported strong monthly growth in online sales between March and May 2020. Spain saw growth of around 35% in online sales in April, with the EU average at 15%. Further evidence from literature finds that based on Spain's credit card transactions, in the period post-lockdown, online market share of total expenditure grew by around 50% (from around 12% to above 22%). For most countries, total online sales fell in June and July, as there was an easing of restrictions during the early summer period which led to some customers in these countries to return to in-store shopping. More recent figures show that online shopping sales picked up in October as some restrictions were re-imposed.

Figure 8: In April and May selected EU countries saw an upsurge in online sales, growth that slowed as restrictions loosened

Retail sales through mail order houses or by internet, index of deflated turnover as a percentage change on the previous period (monthly), 2020

Source: Eurostat - Turnover and volume of sales in wholesale and retail trade

Notes:

1. Data are provided by Eurostat.

2. There is no November data available for France.

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6. Insights from using new timely transactions data

As part of our response to the coronavirus pandemic, we have developed a range of real-time indicators to provide more timely and higher-frequency insights into how the economy is evolving over time. We have been working collaboratively with the financial technology company Revolut ¹ to gain higher frequency data on consumer spending. Revolut customers tend to be younger and more metropolitan than average with a fast-growing customer base of several million in the UK, so spending may not be representative of the overall UK macroeconomic picture. To address this, we have applied weightings to adjust for user-base growth and sectoral representation. Also, as the attributes of the user-base are largely constant over time, a comparative analysis across periods (in a "difference-in-differences" fashion) can provide valuable insights into the relative impacts of different lockdowns.

Total card spending

Figure 9 shows that the different restrictions and lockdown policies introduced in the home nations at various points in time have led to differences in card spending between nations and within merchant groups ². These variations arise partly from differences in introduction date, duration, and severity of these restrictions. Examples of this include the Wales fire-break lockdown, England's tier restrictions, Scotland's tier restrictions, and Northern Ireland's hospitality restrictions.

Figure 9: Daily total card expenditure by UK nation and sector

7-day rolling average of adjusted indexed values (100 = day of week average February 2020)

Source: Revolut, ONS calculations

Notes:

1. Introduction of lockdowns and other restriction polices are expected to differ between the four UK nations.

2. Geographic locations are defined by Revolut cardholder address rather than merchant location.

3. Merchant category codes classify businesses dependent upon primary business categories, which can then be grouped up to higher, mutually exclusive sectoral levels. In this analysis, Entertainment includes pubs, restaurants, and social venues; Retail spending includes clothing and footwear, department stores, mixed retail businesses, household goods, and other retailers; Food and drink includes supermarkets, convenience stores, and other food and drink providers.

4. UK: Lockdown 1 - 23 February 2020, Lockdown 3 - 5 January 2021; England: Lockdown 2 - 5 November 2020, Wales: Fire-break - 23 October 2020; Northern Ireland: Lockdown 2 - 19 October 2020, Lockdown 3 - 27 November 2020.

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All nations saw a large reduction in card spending following the first national lockdown restrictions. Food and drink spending (which captures supermarket spending) sees a spike prior to the first lockdown, likely reflecting the effects of stockpiling amidst concerns around supply chain disruptions and increased time spent at home. There were subsequently smaller spikes for the second and third lockdowns, which might in part be due to reduced uncertainty around the availability of these goods and services. Food and drink spending activity has generally been above its pre-pandemic (February 2020) level throughout the year due to fewer restrictive policies on this sector and the shutting down of restaurants.

Entertainment spending - which contains pubs and restaurants spending - was consistently impacted most since March 2020. The impact on entertainment spending likely reflects how the hospitality industry has been subject to government policies to reduce the rate of virus transmission, such as complete closures and limits on the number of households that can mix in pubs and restaurants. The Eat Out to Help Out scheme in August 2020 drove a recovery in the sector but it reversed as restrictions were tightened from September.

Retail spending fell across nations in response to the first national lockdown, seeing increases over time and returned to pre-pandemic levels in late June 2020. Additionally, spending spikes were observed before and after the introduction of later restrictions such as the second England lockdown before Christmas, where some seasonal spending may have been displaced due to behavioural changes.

Table 1 shows how the value of total card transactions fell in the first 13 days of each of the lockdowns in England, relative to a pre-pandemic reference. It compares the impact on merchant categories using daily data to provide a breakdown at a total level. Overall, spending patterns of the second and third lockdown were broadly similar but less severe than the first lockdown, with entertainment and retail expenditure markedly less impacted during the latter lockdowns. This might reflect that the restrictions were generally more stringent in the first lockdown, while there may have been more adjustment to online activities by consumers and businesses in later lockdowns.

There is some tentative evidence that this improvement in the second lockdown was bolstered by Black Friday (27 November 2020) and Cyber Monday (30 November 2020) spending, as well as seasonally expected Christmas spend. This could reflect that some retailers adapted more effectively to new restrictions, for example by offering click-and-collect services during the second lockdown.

Notes:

1. Lockdown 1 started on 23 March, Lockdown 2 started on 5 November, Lockdown 3 started on 5 January.

2. Baseline, 100 = day of week average February 2020.

In-store and online card spending

Table 2 shows that in-store values for both entertainment and retail during lockdowns saw larger decreases from the pre-pandemic reference period than for online transactions, with retail performing better than entertainment during the second and third lockdowns. This might reflect the introduction of COVID-19 guideline measures that enabled increased in-store activity and the potential bringing forward of some early Christmas spend, with Black Friday and Cyber Monday also likely having some impact on spending levels during lockdown two retail and entertainment categories. In-store food and drink spending saw values close to the pre-pandemic levels during periods of lockdown, evidently in part due to the essential nature of supermarket spending and subsequently less targeted government policy on this sector.

Online card spending has overall been less impacted by the imposition of lockdown restrictions, as there has likely been a substitution away from in-store purchases throughout the lockdowns. This is reflected by much higher online spend for food and drink, as well as retail, where online delivery demand and capacities have likely increased since the first lockdown. The net impact of this would also reflect companies' capability and adaptability to provide consumers online alternatives to in-store spending, as well as how well consumers adjust to these alternatives.

Notes

1. Lockdown 1 started on 23 March, Lockdown 2 started on 5 November, Lockdown 3 started on 5 January.

2. Baseline, 100 = day of week average February 2020.

Notes for: Insights from using new timely transactions data

1. Geographic nations are defined by Revolut cardholder address rather than merchant location.

2. Merchant category codes classify businesses dependent upon primary business categories, which can then be grouped up to higher, mutually exclusive sectoral levels. In this analysis, entertainment includes pubs, restaurants, and social venues. Retail spending includes clothing and footwear, department stores, mixed retail businesses, household goods, and other retailers. Food and drink includes supermarkets, convenience stores, and other food and drink providers.

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7. Future developments

We will continue to analyse official retail sales estimates and complementary real time data to monitor developments in the retail sector. We expect the continued lockdown and easing of restrictions in the future to have further impacts on retail sales and consumption patterns. This could contribute to the evidence base of the pandemic's impact on retail sector and inform policy decisions.
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Impact of the coronavirus (COVID-19) pandemic on retail sales in 2020

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Insights into the impact of the pandemic on retail in 2020, including how the national and local lockdowns and restrictions impacted on retail expenditure.

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Market Research Reports & Consulting | GlobalData UK Ltd.

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Impact of Brexit on Retail - Thematic Research

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The trade deal signed with the EU in December 2020 will greatly lessen the impact of Britain’s exit from the single market, UK retailers and consumers will still experience changes in the retail landscape in 2021 and beyond.

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In this episode of The McKinsey Podcast, McKinsey senior partner Achim Berg talks with executive editor Roberta Fusaro about findings from McKinsey's The State of Fashion 2022 report. They cover the concurrent effects of the many challenges facing both suppliers and brands, including the war in Ukraine, the pandemic, and inflation.

After that: the state of anxiety tends to get a bad rap. But in our second segment, Dr. Tracy Dennis-Tiwary, author and professor of psychology and neuroscience at Hunter College, shares why anxious feelings deserve respect.

The following transcript has been edited for clarity and length.

The McKinsey Podcast is cohosted by Roberta Fusaro and Lucia Rahilly.

Return to normal? Not yet

Roberta Fusaro: Achim, the world has changed since we published The State of Fashion 2022 report. What are the changes that have had the greatest effect on fashion and the textile industry?

Achim Berg: The invasion into Ukraine is one of those topics not fully on our radar in November or December.

But that's not the only change that has occurred since we published the report. We also didn't know that Omicron would be the dominant variant in the first half of 2022.

We also did not expect that inflation would be a permanent challenge. We expected, like many governments, that this would be a temporary problem. We expected that the supply chain would normalize after two years of a pandemic. That also didn't come true.

We did not expect an energy crisis.

We also didn't expect that COVID-19 would be a big issue in China again, because China looked like the big winner of the whole pandemic at the end of last year. That's the challenge of writing a report that tries to somehow predict or frame the future: things often turn out slightly different. But overall, our forecasts provided reliable insight and included topics we identified to drive the industry in 2022.

Supplier challenges

Roberta Fusaro: From the panoply of issues you've mentioned, what challenges do suppliers face right now?

Achim Berg: There are a lot of different challenges. It depends on which country we look at. Some are quite challenged.

The supplier side has a practical problem of delivering what is expected. But they're also facing the issue of forecasting in a proper way because we don't know exactly how the consumption patterns will develop.

The industry is always a couple of months ahead of the consumer, so they need to make some bets. In this environment, which is much more volatile than what we have seen in the last 20 years, it's very difficult to make the right bets.

Supplier solutions

Roberta Fusaro: Given the increased risk, how should companies respond? And what are some things that companies can do to hopefully end up on the right side of these big bets?

Achim Berg: They should look for real partnerships and closer exchanges with brands because that would give companies access to data and would therefore make things more predictable.

On the other side, it's worthwhile to think about how to flex the system to the maximum, because demand patterns are not as stable as they used to be. Brands and retailers will be forced to react more flexibly to these challenges. And the suppliers are, by definition, at the receiving end, so they will have to increase their flexibility even more.

Cost pressure will continue, so they will likely have to work also on the cost side, and also on their tier-two and tier-three suppliers in the whole system.

Different regions, different challenges

Roberta Fusaro: What were some of the more interesting data that came out from different geographies?

Achim Berg: On a global level, we've seen a faster recovery than what we expected 18 months ago. We had expected that the whole fashion industry would not get back to 2019 levels until the end of 2022. And on a global level, we already achieved that at the end of 2021.

We had expected that the whole fashion industry would not get back to 2019 levels until the end of 2022. And we already achieved that at the end of 2021.

You could argue that the fashion industry has shown more resilience and a faster ability to deal with challenges than what we had expected. Maybe we were too conservative in the eye of the storm. That might be another explanation.

The recovery was also quite different by region. Asia, with the very strong leadership of China, was the motor of the recovery right at the beginning. They had a very short dip and then they were doing quite well.

Europe had the toughest challenge to deal with, because they were lacking international travelers. Also, given the fragmentations of the markets, the recovery wasn't that fast or that strong.

North America was remarkable. We've seen a V-shape recovery, which we had seen after some of the financial crises before. But we didn't expect to see that here in the pandemic. If we look forward, it's difficult to make predictions, as we discussed earlier.

China is currently quite challenged with its zero-COVID-19 policy, but we don't know how long it will take to get recovery here. Let's hope for the best, because that's going to be very important in particular for the luxury part of the industry. Europe is currently doing better, because we see travel coming back. North America is still going strong.

It will heavily depend on how long the war in Ukraine continues, how long that will impact the cost of energy, and also how much stimulus the different governments will be able to provide after two years of continuous stimulus against the pandemic.

So the jury is out. We should prepare accordingly for some challenges we could face.

Think tech from beginning to end

Roberta Fusaro: During the height of the COVID-19 outbreak, we talked a lot about companies accelerating their use of technology. Has that momentum continued?

Achim Berg: Technology plays a very important role. We also just published the new State of Fashion Technology Report 2022, which makes an important point: that we have to think about technology really end to end.

We used to focus more on the front end-everything that was more consumer focused, through e-commerce, through loyalty systems. But we are realizing now that the back end also needs to be digitized for many reasons.

Traceability from a sustainability point of view has become more important and will become even more important going forward. So digitizing the whole supply chain end to end is a big topic for many of our clients. And that's also why technology investments for the fashion industry are expected to ramp up.

The importance of consumer demand for brands

Roberta Fusaro: Thinking about the challenges now for brands, what obstacles do these organizations face?

Achim Berg: It all comes down to consumer demand. And as I said, we had hoped that 2022 would mark the end of the pandemic, that certain freedom would return that would allow people to celebrate, to entertain. And the fashion industry was very ready to dress consumers exactly for that. And, to a certain extent, we see that that is happening. Some of the categories that were hammered throughout the pandemic, like dresses, high heels, even suits, have had a strong return in the first five or six months of this year.

We also expect that people will do a lot of traveling. Europe is clearly returning to the whole vacation industry; I think Americans will do the same, and Asia as well, with the exception of China. That will drive consumption.

In a way, despite a looming recession and inflation rates, we see that consumers have a kind of backlog and a desire to spend on fashion. The problem is that energy bills will continue to increase, and we don't know how long the conflict between Russia and the Western world will continue.

The conflict will likely continue to have a negative impact on the cost of energy and on the cost of living. Realistically, we might see a lot of consumers returning from vacation and from a great summer, realizing that everything has become much more expensive. That could hit larger parts of the fashion industry-in particular, the discount, the value, and the midmarket segments. The jury's still out on how luxury will play out in this environment.

We were all surprised by how quickly luxury returned from the lows of the pandemic. This return has mainly been driven by China, but also by a very strong recovery, and a fast recovery, in the United States. The demand for luxury is super strong at this point in the year. I'm more concerned with the Christmas business and, in particular, the outlook for 2023.

Innovate plans, flex systems, and manage costs

Roberta Fusaro: Thinking about that, Achim, what should brands do?

Achim Berg: Brands should prepare for a likely recession. If the recession is not happening, we're all going to be positively surprised.

But-given the current inflation levels all around the world, driven by energy cost increases, and the fact that interest rates are increasing around the world-that will have an impact on a lot of things. It will have an impact on consumption patterns. It will have an impact on refinancing patterns and on the cost structures of companies. What we're discussing with a lot of the clients is how to prepare for that.

On the one hand, that means having a robust plan for the demand side and for how to flex your systems, similar to the suppliers, to varying demands. The industry has been quite innovative in that respect over the last two years of the pandemic. This will somehow have to continue.

On the other hand, the industry will have to manage costs. Many of the leading players have started to tackle that by reviewing their investment budgets, reviewing their cost structures, and preparing for a challenging 2023. That is what brands will have to focus on in the coming months.

The winners and losers of 2022

Roberta Fusaro: Most companies in this industry have been challenged for several years now. How do they respond to these disruptions? And how do they find ways to invest in new technologies?

Achim Berg: 2020 was the worst year from an economic-profit point of view since we've collected data about this industry-probably going back to the Great Depression.

2021 was a recovery year for many. And in that respect, a more difficult 2022 and an even more difficult 2023 could have some devastating effects to the industry. Our report also shows that profitability is more and more polarized in the industry.

In 2020, less than one-third of the companies were value generating, while two-thirds were value destroying. So a longer recession and a more challenging environment will definitely lead to a shakeout in the industry. We also see there are a few companies we call the "super winners," the top 20 performers of the industry. But you could broaden that to the top 20 percent of the industry that are quite healthy. These companies have already started to invest in technology and digitalization. They've invested in sustainability, they've invested in talent-all the things that you would want to invest in. They also have a more balanced, more global business. So they will likely get better through the months ahead.

Without any question, companies will have to do this transformation away from physical stores and toward a more digital business model. They will have to find ways to redirect budgets into those areas. That will be more difficult for some than for others, which will likely lead to even more polarization in the industry.

The importance of sustainability

Roberta Fusaro: Is sustainability one of those factors in thinking about how companies are going to transform?

Achim Berg: Sustainability is the big topic for the industry. It was the big topic before the pandemic hit and it continues to be the big topic.

I always say that we're going through different stages. It took us a couple of years to really create awareness for the topic and for the industry to accept that sustainability is a big topic-not only on CO ₂, but also on worker rights, worker conditions, and pollution in a much broader sense. The industry has finally accepted the challenge.

A lot of companies have now made commitments, most of them until 2030. COP26 was a big event in that respect. We're now heading into a phase where the industry has to deliver against those promises. And that coincides now with a phase where we likely have limited budgets and more stress on the demand side. So, without any doubt, it would have been much better in the end, and also for the planet, if we were having a stronger recovery after the pandemic. But that's unfortunately not what we are facing.

On the other hand, the planet cannot afford an industry that's not making progress. So, in that sense, companies will have to do all of that. They will have to deliver against the ambitions of digitalization, and also against the demands of sustainability.

Consumers have become more demanding in that respect. A lot of people have been at home throughout the pandemic. They have had more time to think about their consumption patterns. We've seen a big change-in particular, in Western Europe and North America-in how consumers think about sustainability and what they demand from brands. Therefore, brands will have to do it all. It's not going to get any easier for brands in the whole industry in the next 18 to 24 months.

Roberta Fusaro: In the report, you talked about the use of digital "product passports," which contain data about how products came into being and their impact on the environment. Do you think digital product passports are a good tool to help brands reach their sustainability commitments?

Achim Berg: Product passports and traceability are the two big topics when it comes to sustainability. Digitalization will be a key lever here: on the one hand, to provide the required transparency along the whole value chain, and on the other, to provide that information to an ever-more-demanding consumer who wants to have that transparency. Let's not forget that there is a regulator out there that will request that transparency. And the supply chains are very complex.

There are different stages. It's happening in emerging markets. It's transported in most cases at least around half of the world. So all of that requires the use of technology to provide the transparency and the reliability that you need to drive the business.

Learning from the top 20 performers in fashion

Roberta Fusaro: What are the lessons that companies can take from some of the top companies in our research?

Achim Berg: Super winners have been outperforming the industry now for many, many years. That has led to the level of polarization that we have at the moment. We also expect that the top players will get stronger due to the next crisis we are facing, given the resources they have built and the brands and business systems they have built.

They are a constant inspiration for the rest of the industry. Not all of what they do can be replicated; many low-performing players have challenges in funding some of the things that the top performers are doing.

You need to be active in different geographic regions to balance risk. It also helps to operate across different product categories-a higher share of digital and a more consistent use of data are clearly beneficial to the performance.

And then, last, it's the fashion industry. If you put your chips on the right trend, and if you have the brand heat that you wish for, of course you're going to do better. And you can be like a phoenix rising from the ashes over the next couple of seasons. That's the beauty of the industry.

We also see some strong brands now that were not that strong before the crisis. So, unfortunately, it's a sliding scale for many. But there's always some renewal and innovation and hope. We're going to see some surprises over the next 24 months, without any question.

Roberta Fusaro: Thanks so much, Achim, for joining us today.

Achim Berg: Thank you, Roberta, for having me.

Lucia Rahilly: And now, let's hear from Dr. Tracy Dennis-Tiwary from our about her new book, Future Tense: Why Anxiety Is Good for You (Even Though It Feels Bad).

Tracy Dennis-Tiwary: The core message of the book is that we mental-health professionals have unintentionally given people some damaging information when it comes to anxiety. And we've essentially spread a couple of fallacies about anxiety.

First, it's that anxiety is always a debilitating experience, it's dangerous, and it's even something we should think of as a disease.

That means that the solution would be to prevent it and eradicate it and destroy it at all costs, like we do with any disease. The problem with that, when it comes to anxiety, is that it is literally a recipe for making anxiety worse.

There's a paradox of anxiety: the more we avoid it, the more it tends to spiral out of control. So we not only have more intense anxiety because we're avoiding it, but we lose the opportunity to look at anxiety and its potentially helpful parts.

There's a paradox of anxiety: the more we avoid it, the more it tends to spiral out of control.

Anxiety is an emotion that we've evolved to anchor us into the future tense. This ability to think into the future not only protects us but also makes us more persistent, more innovative, more creative, and more socially connected.

So this story that we have all come to believe about anxiety is actually really starting to get in the way, especially during a time like the pandemic when we can't escape anxiety.

And that's the second false idea that we've unintentionally spread-we mental-health professionals-that any experience of anxiety is a malfunction and a failure.

So what do we do? We start to try to fix it all the time. And we lose those opportunities to see how it can actually be a strength and a source of resilience. Anxiety can be very intense, very extreme, even, but that doesn't mean that it's an anxiety disorder.

A healthy mindset about anxiety is one in which we look at it very differently than we're used to looking at it. We're looking at anxiety as a problem to solve, but anxiety is a feature of being human. And when you look at the difference between anxiety and fear, it starts to help us understand that.

Fear is the present certainty. We're absolutely certain that right now we're in danger. But anxiety is not that. Anxiety is apprehension about the uncertain future. That is, we know that there's something coming around the bend. It could be bad, but it could also be good. What anxiety helps us do is prepare to make those good things happen.

A second healthy mindset about anxiety involves this perspective about anxiety, that it's information telling us there's something happening in the future and we really care enough to make it happen.

When we start to think of anxiety not as this dangerous thing but as a helpful thing, that changes everything about how we then face anxious moments, whether they're controllable or uncontrollable-it helps us cope with that at our best.

And a third aspect about having a healthy mindset about anxiety is that we think of it not as something that overwhelms us when we face the uncertain world around us but rather something that helps us navigate uncertainty. Because anxiety is an emotion that evolved to help us translate and navigate the uncertain world.

How does anxiety help you?

What it helps you see is that because you're in the future tense and you care about making the good things happen in the future, it helps you see possibilities. It can make us more persistent. It can make us be more fluent to think outside the box to be innovative when we need to, because we see that there's a possibility for something good to happen.

When we're anxious, we also are more reward focused. We have higher levels of dopamine in our brain when we're anxious. We typically associate dopamine as a reward neurotransmitter that we feel when we're experiencing something pleasurable. Well, anxiety triggers dopamine. Why? Because dopamine helps us move toward positive outcomes.

It also triggers our social-bonding hormone oxytocin, which increases when we're with someone we love. It's one of the ways that we biologically bond to each other. And when we're anxious, that hormone shoots up. Why? Because social connection, social bonding, is one of the best ways that we manage our anxiety.

In the book, I also talk about a three-part framework for doing something with anxiety, for working with it. One is that we remember that anxiety is information, and we need to listen to it.

Two is that sometimes anxiety is not useful information. We can learn to tell the difference, and when we do know that it's not useful anxiety, we can use those great tools out there to let go and immerse ourselves in the present moment, get help through therapy, do those things that help us scale back from the future tense. The third guideline is to really hitch that anxiety, that information we're getting about what we want in the future, to what we care about, to what gives your life a sense of meaning.

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How current global trends are disrupting the fashion industry

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The fashion industry is currently facing significant economic and geopolitical challenges. Here's what suppliers and brands can do to adapt and thrive.