UK falls into worst recession after record 20.4 per cent GDP plunge
UK GDP shrank a record 20.4 per cent in the second quarter to plunge the country into its largest recession on record as the coronavirus pandemic decimated economies around the world.
According to the Office of National Statistics (ONS), the economy is now 22.1 per cent smaller than it was at the end of 2019.
The decline was largely driven by a 20 per cent fall in output in April, the biggest monthly decline on record, as the UK went into full lockdown.
With the easing of measures in May and June, a semblance of a recovery began, with GDP picking up 8.7 per cent in the latter.
Last quarter, GDP slumped 2.2 per cent, which was at the time the worst fall since 1979, as the disease just started to hit the UK economy.
The cliff edge drop that followed between April and June sent the UK hurtling into recession, which is defined as two straight quarters of economic decline.
The plunge was far worse than those recorded in the Eurozone, which fell 12.1 per cent, and in the US, which contracted 9.5 per cent quarter on quarter.
June growth fails to offset UK GDP’s lockdown blow
ONS deputy national statistician for economic statistics Jonathan Athow said: “The recession brought on by the coronavirus pandemic has led to the biggest fall in quarterly GDP on record.
“The economy began to bounce back in June with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover.
“Despite this, UK GDP in June still remains a sixth below its level in February, before the virus struck.
“Overall, productivity saw its largest fall in the second quarter since the three-day week. Hospitality was worst hit, with productivity in that industry falling by three quarters in recent months.”
With full lockdown coming into force at the end of March, economists had predicted that April would bear the brunt of the damage.
Over the period, there have been record quarterly falls in services, production and construction output, especially in those industries that have been most exposed to the restrictions.
Services output decreased by 19.9 per cent between April and June, while production output fell by 16.9 per cent, and construction output contracted by 35 per cent.
Risk now is longer term scarring
Tej Parikh, chief economist at the Institute of Directors, said that the “dire figures” highlighted “the painful reality households and businesses across the country are facing”.
“The battle now is to prevent longer-term scarring from this plunge in economic activity”, he added.
Suren Thiru, head of economics at the British Chambers of Commerce, agreed that the government needed to take “bold action” to restore confidence in the economy after the fall in UK GDP.
“With restrictions steadily easing, the second quarter is likely to prove to be the low point for the UK economy.
“However, the prospect of a swift ‘V-shaped’ recovery remains remote as the recent gains in output may fade over the coming months as the economic damage caused by the pandemic increasingly weighs on activity, particularly as the government support measures wind down.
“Against this backdrop, bold action is needed to immediately inject confidence back into the UK economy.”
No V-shaped recovery from UK recession
Debapratim De, a senior economist at Deloitte, said that while June’s growth showed the green shoots of a recovery, the UK recession will take a long time to beat.
“The UK economy has entered into recession with its worst quarterly performance on record,” he said. “The monthly data shows that a bounce back is underway and picked up steam in June.
“However, its pace is consistent with a slow recovery – one that seems unlikely to be V-shaped. We expect economic activity to return to pre-pandemic levels only in the second half of 2022.”
Just yesterday official data revealed 730,000 Brits have lost their jobs since lockdown began, leading Boris Johnson to warn of a “bumpy” road ahead.
UK faces ‘slow crawl’ back to growth
And Tom Stevenson, investment director at Fidelity International, said the scale of the UK recession compared to other countries is a concern.
“No-one knows exactly what the recovery from coronavirus will look like,” he added. “But it is likely that it will be a slow crawl towards pre-Covid levels with further government stimulus needed to restore sustained growth.
“Much depends on whether rising unemployment creates a negative feedback loop into lower appetite to spend and invest. Against this backdrop, the recent preference for quality, growth stocks and the safe haven of gold look likely to persist.”
Howard Archer, chief economic adviser to the EY Item Club, said he expects the economy to grow 12 per cent quarter-on-quarter in July to September.
“The economy should benefit from the reduced lockdown restrictions,” he said, before predicting growth will slow in the fourth quarter when the furlough scheme ends.
“Many people will have lost their jobs, despite the government’s supportive measures and many incomes will have been negatively affected,” he added.
“This will have some limiting impact on consumption. Indeed, the strength and sustainability of the UK‘s recovery will clearly be influenced by just how much unemployment rises over the coming months. Meanwhile, many businesses have had very difficult times and this will likely limit their willingness to invest or to commit to major new projects for some time to come.”