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GDP stats to reveal depths of virus-fuelled UK recession

Update: August, 12/2020 - 10:29

 

 A government "Eat Out to Help Out" scheme has offered discounted restaurant meals. — AFP/VNA Photo

LONDON — Britain will on Wednesday officially enter recession, with figures set to show an economic collapse of around 20 per cent of GDP in the second quarter -- the worst contraction in Europe.

The Office for National Statistics (ONS), which is due to unveil the latest assessment at 0600 GMT, is uniformly expected to confirm the unprecedented contraction between April and June.

It will be Britain's first recession since the 2008 financial crisis.

The predicted drop in gross domestic product reflects the mammoth fall in economic activity nationwide during the quarter due to the lockdown imposed to tackle the pandemic.

Economists polled by Bloomberg have on average predicted a decline of 20.7 per cent in the second quarter, compared to the first three months of the year.

The UK economy contracted by 2.2 per cent in the first quarter and, with a recession defined as two successive quarters of decline, together with Wednesday's results herald the country's first in a decade.

Initial figures already released show economic activity plunged around 20 per cent in April, before rebounding slightly in May thanks to the first easing of restrictions.

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.

Meanwhile the Bank of England (BoE) has launched massive asset buybacks and cut interest rates to historic lows that are almost zero.

If Britain's GDP drops by more than 20 per cent, it will have posted the worst performance in the second quarter in Europe, ahead of Spain (-18.5

Per cent) and France (-13.8 per cent).

The country -- which already has the highest death toll in Europe from the virus -- appears to be paying a heavier price for locking down later than its continental neighbours earlier in the year.

The British economy also relies more heavily on the hard-hit services sector than other European nations.

'Won't be pretty'

The recession is already wreaking havoc, with ONS data released on Monday showing around 730,000 UK workers have been removed from the payrolls of British companies since March.

Announcements of job cuts have become a daily occurrence, with firms expected to pick up the pace of layoffs as the government's key employment support scheme ends in October.

The unemployment rate is expected to soar in the months ahead, with millions set to turn to government benefit programmes.

"Whatever the numbers are, and they won't be pretty, the more important question is how quickly the UK economy can bounce back," said Michael Hewson, analyst at CMC Markets.

"We have seen some progress on that," he added.

Finance Minister Rishi Sunak has appeared cautious about the pace of the recovery, telling Sky News last week "there is hardship ahead for many people" while noting there was "hope".

Meanwhile members of the Bank of England have been divided over how quickly Britain will return to economic normalcy.

Recent indicators suggest a strong rebound in many industries, from retail sales -- which saw a boost from businesses reopening in June -- to other private sector activity such as construction.

In its forecast released last week, the BoE was less pessimistic about the fall in GDP for the whole of 2020, forecasting a drop of 9.5 per cent.

But at the same time, it said it expects a slower recovery in 2021 and warned that the economy would not return to its pre-pandemic level until 2022. — AFP

 

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