UK falls into recession with biggest quarterly slump
Lockdown has devastated company output
The UK has plunged into recession for the first time since the 2008 financial crash, with output plummeting by 20.4%, the deepest quarterly slump on record.
This follows a 2.2% fall in Q1 and was in line with consensus forecasts of 21%. The cumulative fall for the first six months was 22.1%.
More encouragingly, GDP expanded by 8.7% in June 2020, following growth in May of 2.4%, upgraded from 1.8%, and the 20.3% slump in April.
Stock prices in London were expected to open lower on the back of the GDP data and after equity markets in the US ended in the red on Tuesday as stimulus measures appeared to be deadlocked.
The data shows the UK economy to have suffered worse than other countries from the coronavirus pandemic. Spain saw a Q2 drop in output of -18.5%, while the French economy shrank by -13.8%, Italy’s by -12.4% and Germany by a more modest -10.1%. The US saw a -9% fall in output. However, China, at the heart of the original outbreak, avoided recession after it returned to growth in the second quarter.
The ONS said: “Compared with the end of 2019, the UK fell by a cumulative 22.1% in the first six months of 2020.
“This fall was slightly below the 22.7% seen in Spain but was more than double the 10.6% fall in United States GDP over this period.
“The larger contraction of the UK economy primarily reflects how lockdown measures have been in place for a larger part of this period in the UK compared with these other economies.”
Tej Parikh, chief economist at the Institute of Directors, called for further support, saying: “The Chancellor must respond now with measures to support jobs by cutting the cost of employment, for instance by reducing employers’ National Insurance Contributions.
“By the Autumn, it might be too late to have greatest effect. The Treasury should also explore options for restructuring business loans, while targeted grants to help SMEs adjust to the new normal would bolster the Government’s aim of reopening the economy.”
British Chambers of Commerce head of economics Suren Thiru also called for a cut in NICs “and targeted support to help businesses placed under local lockdowns.”
Alpesh Paleja, CBI lead economist, said: “The dual threats of a second wave and slow progress over Brexit negotiations are also particularly concerning, underlining the need for maximum agility from Government on both these issues, allowing a greater focus on the economy’s long-term future.”
Karim Yousfi, chief global strategist at Audacity Capital, said consumers could not be expected to spend Britain out of recession
“Household consumption shrank by 23.1%, by far the largest drop ever recorded. With retail sales volumes falling by just shy of a tenth during the same period, the chances of Britons spending their way out of what is now officially a recession look slim.
“Worrying too is just how badly the UK economy is doing compared to its European neighbours.”
Howard Archer chief economic adviser to the EY ITEM Club, said: “The EY ITEM Club expects the economy to return to clear growth in the third quarter with GDP expanding at least 12% quarter-on-quarter. The economy should benefit from the reduced lockdown restrictions.
“Furthermore, the EY ITEM Club believes there it’s unlikely the economy will regain its fourth quarter 2019 size until 2024.”
Labour’s Shadow Chancellor Anneliese Dodds has condemned Prime Minister Boris Johnson’s handling of Britain’s worsening jobs crisis.
“We’ve already got the worst excess death rate in Europe – now we’re on course for the worst recession too. That’s a tragedy for the British people and it’s happened on Boris Johnson’s watch,” she said.
“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.
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