UK in record recession after economy shrinks by fifth
August 12, 2020 05:55 PM
Britain's economy shrank by a fifth in the second quarter, higher than any European neighbour, as the coronavirus pandemic slammed businesses and plunged the country into a record recession.
"It is clear that the UK is in the largest recession on record," the Office for National Statistics said after gross domestic product (GDP) contracted by 20.4 percent in April-June.
Britain's recession -- its first since 2009 amid the global financial crisis -- was confirmed after two quarterly contractions in a row. GDP shrank 2.2 percent in the first three months of this year.
The statistics office said that the contraction for the first six months of 2020 "was slightly below the 22.7 percent seen in Spain but was more than double the 10.6 percent fall in United States GDP over this period".
But Britain's second-quarter contraction beat Spain's GDP of minus 18.5 percent. The Office for National Statistics (ONS) said Britain's dire second quarter was driven by a 20-percent drop in output in April, "the biggest monthly fall on record reflecting widespread... declines in output across the services, production, and construction industries".
Finance minister Rishi Sunak said the data "confirm that hard times are here". He added: "Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will."
Chancellor of the Exchequer Sunak plans to end in October the government's furlough scheme that is paying up to 80 percent of wages for nearly ten million workers. The UK -- which has the highest death toll in Europe from the coronavirus -- appears to be paying a heavier price for locking down later than its continental neighbours.
The British economy also relies more heavily on the hard-hit services sector than other European countries.
While officially in recession, the UK economy is beginning to rebound as the government eases strict restrictions. GDP output growth was 8.7 percent in June as the economy slowly emerged from its lockdown implemented in late March, the ONS said.
That helped the pound to steady on Wednesday, while London's stock market was up 0.9 percent in mid-morning deals. "The economy began to bounce back in June, with shops reopening, factories beginning to ramp up production and house-building continuing to recover," noted Jonathan Athow, deputy national statistician at the ONS.
"Despite this, GDP in June still remains a sixth below its level in February, before the virus struck. Overall, productivity saw its largest-ever fall in the second quarter. Hospitality was worst hit, with productivity in that industry falling by three-quarters in recent months," Athow added.
To help the economy recover, the Bank of England (BoE) is pumping out hundreds of billions of pounds in cash stimulus and has slashed its main interest rate to a record-low 0.1 percent. "The substantial fiscal and monetary stimulus that has been enacted should provide ongoing support to the economy," EY economist Howard Archer said Wednesday.
"Although the economy is expected to achieve appreciable growth in the third quarter... the rate of expansion will slow in the fourth quarter as unemployment rises following" the end of the furlough scheme.
ONS data released Monday showed that around 730,000 workers have been removed from the payrolls of British companies since March. Announcements of job cuts have become a daily occurrence in the UK, with department store chain Debenhams on Tuesday axing 2,500 posts.
The BoE expects the unemployment rate to shoot to around 7.5 percent by the end of the year from 3.9 percent currently. And it forecasts that the UK economy will have contracted by 9.5 percent for the whole of 2020.
The BoE estimates that UK gross domestic product will rebound in 2021 by nine percent. "A labour market crisis or another strong rise in (virus) infections could quickly knock this fragile recovery off course," said City Index analyst Fiona Cincotta.