UK in record recession after economy shrinks 20% in Q2, when coronavirus lockdown was tightest

It will be Britain's first recession since the 2008 financial crisis.
It will be Britain's first recession since the 2008 financial crisis.PHOTO: REUTERS

LONDON (REUTERS, AFP) - Britain’s economy shrank by a record 20.4 per cent between April and June, when the coronavirus lockdown was tightest, the largest contraction reported by any major economy so far, according to official figures published on Wednesday (Aug 12).

The data also showed that the world’s sixth-biggest economy entered a recession as it shrank for a second quarter in a row.

It is Britain's first recession since the 2008 financial crisis.

The grim economic news comes despite unprecedented government interventions, including spending tens of billions of pounds on job support schemes in a bid to avoid mass layoffs.

The country - which already has the highest death toll in Europe from the virus - appears to be paying a heavier price for locking down later than its continental neighbours earlier in the year.

The British economy also relies more heavily on the hard-hit services sector than other European nations.

There were signs of a recovery in the month of June alone when gross domestic product grew by 8.7 per cent from May, the Office for National Statistics said.

That was just above economists’ average expectation in a Reuters poll for an 8 per cent rise. Growth in May was revised up, too.

“The recession brought on by the coronavirus pandemic has led to the biggest fall in quarterly GDP on record,” Mr Jonathan Athow of the Office for National Statistics said.

“The economy began to bounce back in June... Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.”

Last week, the Bank of England forecast it would take until the final quarter of 2021 for the economy to regain its previous size, and warned that unemployment was likely to rise sharply.

The second-quarter slump in GDP was almost exactly in line with economists’ in a Reuters poll, and exceeded the 12.1 per cent drop in the euro zone and the 9.5 per cent quarter-on-quarter fall in the United States.

 
 
 
 

“Today’s figures confirm that hard times are here,” Finance Minister Rishi Sunak said. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.”

The level of output in June was 16.8 per cent below its level a year earlier, compared with a 23.3 per cent fall for May.

British GDP shrank by 2.2 per cent in the first quarter of the year, reflecting the lockdown that started on March 24.

The recession is already wreaking havoc, with the Office for National Statistics data released on Monday showing around 730,000 UK workers have been removed from the payrolls of British companies since March.

Announcements of job cuts have become a daily occurrence, with firms expected to pick up the pace of layoffs as the government's key employment support scheme ends in October.

The unemployment rate is expected to soar in the months ahead, with millions set to turn to government benefit programmes.

"Whatever the numbers are, and they won't be pretty, the more important question is how quickly the UK economy can bounce back," said Mr Michael Hewson, analyst at CMC Markets. "We have seen some progress on that."