The severe economic toll of the coronavirus crisis in the U.K. is starting to emerge as closure of shops, restaurants, hotels and schools—ordered to save lives in the midst of the pandemic—has pushed the economy into its first recession in 11 years with output shrinking a record 20% in the second quarter.
- The U.K. is now in a technical recession—its first since during the 2009 financial crisis—following two consecutive quarters of GDP decline, the U.K.’s Office for National Statistics said.
- Output shrank 20.4% between April and June, when lockdown restrictions were most severe, marking the biggest quarterly contraction since records began in 1955, and of any major economy so far, after contracting 2% in the first three months of the year.
- As well as retail, hospitality and schools, household spending dropped, while services, responsible for 80% of the U.K.’s economic output, saw its biggest quarterly drop ever recorded.
- There were signs of life in June, with the economy lifting above analysts’ expectations as restrictions began to ease.
- The latest figures come a day after the U.K. saw its biggest quarterly drop in employment since 2009, with 220,000 fewer people in the workforce between April and June, although more people are expected to start looking for work once the government-backed furlough scheme ends in October.
- Finance minister Rishi Sunak said of Wednesday’s figures: “Today’s 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.”
“Clearly the road to recovery will be long and possibly painful at times. It will take months and perhaps even years, rather than weeks, before the economic scars from this pandemic heal,” said Adam Vetesse, analyst at investment platform eToro.
The U.K.’s fall into recession was not a surprise after a prolonged shutdown of swaths of British industry. Prime Minister Boris Johnson will faced renewed scrutiny over his handling of the pandemic with the U.K. suffering not only the worst death toll from the pandemic in Europe, with 50,000 deaths, but also the worst economic fallout, following the decision to delay putting in place lockdown measures weeks after the U.K.’s Europe neighbors. Forecasts for a V-shaped recovery are threatened by mounting job losses, with 700,000 roles shed since March, and with 10 million workers currently furloughed on a government-backed scheme that will end in October.
WHAT TO WATCH FOR
The Bank of England estimates that the U.K. economy won’t fully recover to levels seen in late 2019, until the end of 2021. In efforts to cushion the economy from the worst of the virus’ economic effects, the U.K.’s central bank has slashed interest rates to record lows of 0.1%, and has pumped $390 billion (£300 billion) into bond-buying programs meant to lower borrowing costs.