UK plunges into deepest recession on record, as economy shrinks 20 per cent in second quarter

Country posts worst quarterly fall in GDP on record during coronavirus lockdown – but shows signs of recovery in June

Ben Chapman
Wednesday 12 August 2020 08:06 BST
Chancellor confirms 'hard times are here' as UK plunges into economic recession

The UK plunged into its deepest recession on record in the first half of the year as the coronavirus lockdown saw the economy contract by more than a fifth between April and June.

The economy shrank by 20.4 per cent in the second quarter of the year, worse than any other G7 nation, taking the UK into its first recession since the 2008-2009 financial crisis.

The dramatic fall in output came after a 2.2 per cent drop in the first three months of the year.

A recession is defined as two successive quarters of decline in GDP. The US and eurozone have both already been confirmed as being in recession.

There were signs of a recovery beginning, as monthly gross domestic product (GDP) rose by 8.7 per cent in June but is 17.2 per cent below February 2020 levels, the Office for National Statistics said.

Survey results showed that businesses are increasing output as demand has risen following the easing of social distancing and lockdown measures.

Manufacturing, construction and services all experienced widespread growth in June as businesses were allowed to resume trading, but output in all three sectors remained significantly below pre-pandemic levels.

The output of service industries remains 17.6 per cent below the level of February, after growing by 7.7 per cent in June.

Manufacturing remains 14.2 per cent below February levels after growing by 11 per cent since May.

Construction saw the biggest fall in output and the sharpest rebound. It expanded 23.5 per cent in June as sites reopened but output is 24.8 per cent down on February levels.

Some services sectors continue to be more severely affected as many businesses remain closed, the ONS said. Among the biggest declines were in the food and beverage services industry where output was barely a quarter of pre-lockdown levels in June.

Government ministers and economists will be closely watching the data for signs that any recovery continued to gain momentum in July and August as pubs, restaurants, bars and hairdressers, among other businesses, were allowed to reopen.

Consumer spending plummeted by a record 23.1 per cent in the second quarter of the year. While that was largely expected as broad sections of the economy shut down, it remains to be seen how quickly people will have returned to their old spending habits in recent weeks.

Jonathan Athow, deputy national statistician at the ONS, 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, 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.”

Economists forecast that, although the coronavirus recession is unprecedentedly deep, it should be of short duration.

“While the UK recession involved a record contraction, it should at least be limited to two quarters,” said Howard Archer, chief economist of the EY Item Club. “The economy has been growing at an increasing rate since May and it appeared to take a further step forward in July as lockdown restrictions were eased further.

“The substantial fiscal and monetary stimulus that has been enacted should provide ongoing support to the economy.”

He added: “There should also be some pent-up demand following the overall reduction in consumer spending in the second quarter, while household purchasing power is being helped by very low inflation. Global economic activity is also now improving as other economies recover from the impact of coronavirus. This will help UK exports.”

Moving out of the technical recession does not mean that the economic pain is over, however. Businesses hit hard by the pandemic are expected to lay off large numbers of staff over the coming months as support measures such as the furlough scheme come to an end.

Chancellor Rishi Sunak said that the ONS figures “confirm that hard times are here”.

“Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.

“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.”

Official data showed this week that around 730,000 UK workers have been removed from the payrolls of British companies since March when the coronavirus lockdown began.

The number of hours worked each week plunged by a fifth and 7.5 million people were temporarily absent from work in July.

The Bank of England forecast last week that the economy will shrink by 9.5 per cent in 2020 after a rebound in the second half of the year as restrictions ease and activity gears up again.

It upgraded its forecast after energy usage and travel data suggested a faster pick-up than had been predicted. The bank previously predicted a 14 per cent contraction.

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