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Covid-19: UK economy plunges into deepest recession since records began

Annotation 2020-08-13 075310

Britain has entered the deepest recession since records began as official figures on Wednesday showed the economy shrank by more than any other major nation during the coronavirus outbreak in the three months to June.

The Office for National Statistics (ONS) said gross domestic product (GDP), the broadest measure of economic prosperity, fell in the second quarter by 20.4% compared with the previous three months – the biggest quarterly decline since comparable records began in 1955.

After a decline of 2.2% in the first quarter, the figures confirm the UK economy plunged into recession after the Covid-19 outbreak spread in March and the government imposed a nationwide lockdown to contain it. Economists consider two consecutive quarters of shrinking GDP as the technical definition of a recession.

After resisting the launch of lockdown until later than other countries around the world and relaxing controls at a slower pace, the ONS said the UK had plunged into the deepest decline of any G7 nation in the second quarter. The downturn is also deeper than any other country in the EU and surpassed a 12.1% quarterly drop in the eurozone.

Warning that the government was making a historic mistake by winding down the furlough wage subsidy scheme as the country falls into recession, Anneliese Dodds, the shadow chancellor, said the downturn was a tragedy for the British people that had happened on Boris Johnson’s watch.

“The prime minister will say there’s only so much he could do during a global pandemic but that doesn’t explain why our economy is tanking so badly compared to other countries,” she said.

Britain’s decline was more than double the 10.6% fall in the US over the same period and also surpassed declines in France, Germany and Italy among G7 nations that have reported second-quarter figures so far. Canada and Japan have yet to publish second-quarter data but are not expected to record greater falls than Britain.

Rishi Sunak, the chancellor, said many people would lose their jobs in the coming months. “I’ve said before that hard times were ahead and today’s figures confirm that hard times are here,” he said.

“But while there are difficult choices to be made ahead, we will get through this and I can assure people that nobody will be left without hope or opportunity.”

Confirming the onset of the deepest recession since records began, the ONS said the decline in the second quarter was widespread, with a dramatic plunge in output across the services, production and construction industries. Reflecting the public health restrictions and forms of voluntary physical distancing in response to Covid-19, it said the pandemic had erased 17 years of economic growth in only two quarters – taking the level of GDP back to the equivalent position in June 2003.

Spending in the economy by households and businesses plunged by a quarter as lockdown measures forced people to stay at home, shops closed, building sites fell idle and factories paused production.

However, monthly figures for the economy indicate that an economic recovery from the pandemic strengthened in June as lockdown measures were gradually relaxed and pent-up demand fuelled a rise in consumer spending. GDP grew by 8.7% in June compared with the previous month – faster than expected by City economists.

The latest snapshot confirmed growth returned in May and strengthened in June, although not by enough to offset a dramatic collapse in output in April during the first full month of restrictions on business and social life, which was deep enough to push the economy into negative growth across the quarter.

GDP has grown 11.3% since the depths of lockdown in April but remains 17.2% below its level in February before the pandemic struck.

Jonathan Athow, the deputy statistician for economic statistics at the ONS, said: “The economy began to bounce back in June, with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover. Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.”

Despite signs of a recovery taking hold, the shockwave triggered by the economic collapse is continuing to be felt, as unemployment begins to rise while businesses across the country struggle to stay afloat. Britain’s jobless rate is expected to more than double to the highest level since the 1980s before Christmas.

Sectors of the economy more reliant on social interaction – such as hospitality and leisure – suffered a steeper decline in activity than industries where homeworking and internet sales were able to increase in response. Food and drink sector activities fell by 84.7% as a result of the closure of bars and restaurants in the second quarter, while car sales and retail activity plunged by 63%.