UK in recession as economy shrinks 20%

LONDON: Shoppers wear face masks on Oxford Street in London. Britain’s economy contracted by a record 20.4 percent in the second quarter with the country in lockdown over the coronavirus pandemic, official data showed yesterday.-AFP

LONDON: Britain’s economy contracted by a record 20.4 percent in the second quarter with the country in lockdown over the coronavirus pandemic, official data showed yesterday. “It is clear that the UK is in the largest recession on record,” the Office for National Statistics said. Britain officially entered recession in the second quarter after gross domestic product (GDP) contracted by 2.2 percent in the first three months of the year. The technical definition of a recession is two quarterly contractions in a row.

The ONS 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”. It added that 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”.

Rebound begins
The economy is beginning to rebound, however, as the government eases its lockdown restrictions. GDP output growth was 8.7 percent in June, the ONS said. “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 as the statistics office.

“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,” he added. Britain’s recession is its first since the 2008 global 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 Bank of England (BoE) is meanwhile pumping out hundreds of billions of pounds in cash stimulus and has slashed its main interest rate to a record-low 0.1 percent. 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, with companies expected to pick up the pace of layoffs as the government’s key employment support scheme ends in October.

The BoE expects the unemployment rate to shoot higher to around 7.5 percent by the end of the year from 3.9 percent currently. The central bank forecasts also that the UK economy will have contracted by 9.5 percent for the whole of 2020. It estimates that UK gross domestic product will rebound in 2021 by nine percent.

Promising signs
British Finance Minister Rishi Sunak said there were some “promising signs” that the country’s economy was recovering from its record economic crash during the coronavirus lockdown which was announced earlier yesterday. Sunak said growth of 8.7 percent in gross domestic product in June was encouraging, even as official data showed the economy contracted by 20.4 percent in the second quarter as a whole.

Sunak told broadcasters there was too much uncertainty to know if Britain would have a swift, V-shaped economic recovery. “What we do know is that there are promising signs,” he said. “There’s still work to do and even as we recover many people are going to lose their jobs, already have lost their jobs, and we need to make sure that we are constantly focused on providing new opportunities for those people.”

Sunak reiterated his opposition to extending the government’s huge job retention scheme which is due to expire at the end of October. Economists expect a sharp rise in unemployment as the state-funded jobs subsidies end. Sunak also said he expected to see more people returning to their workplace in the coming weeks after the government recently changed its guidance.

On Brexit, he said good progress had been made in several areas of the negotiations for a trade deal with the European Union but there were gaps on “a couple of big issues.” He said asking Brussels for an extension of Britain’s no-change transition period – which is due to expire on Dec. 31 – was not the right thing to do and the government had to prepare for all eventualities. – Agencies

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