The UK economy slumped by 20% in the second quarter 2020 to record its worst performance since 1955, plunging the country into its deepest recession since 2009.
The coronavirus pandemic unleashed unprecedented havoc on the country’s economy, forcing shutdown of industries and causing job losses that resulted in a 2.2% contraction in the first quarter.
UK finance minister Rishi Sunak said the worst is yet to come but the country will get through it.
“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. 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,” Sunak said.
UK household spending shrank following coronavirus lockdown that shut businesses and forced spenders to get closefisted.
London as a top tourist destination keeps the UK hospitality business booming. But the global travel restrictions and flight bans held the hospitality industry to a standstill forcing companies to furlough workers and eventually laid them off. The UK economy has lost over 730,000 since the outbreak of COVID-19 pandemic.
The economy succumbed to the pressure and Kallum Pickering, a senior economist at Berenberg said things may get worse.
“Typically, recession data are subject to heavy reasons. Nevertheless, taken at face value, the bigger-than-expected contraction suggests some down risk to our call of a 9.5% contraction suggests some downside in full year 2020,” he said.
Britain’s economic woes have been linked to its handling of coronavirus lockdowns that shuttered retail stores and put self-employment and other public services to a halt.
“The larger contraction primarily reflects how lockdown measures have been in place for a larger part of this period in the UK,” the Office for National Statistics said.
The UK recorded the worst outcome compared with other European countries that were severely hit by the pandemic. There was 22.1% decline in economic output in the first half of 2020, which compared to Germany, France and Italy is a milestone of economic trouble.
The Office for National Statistics (ONS) said the record doubles the 10.6% fall the United States recorded. But among G7 members, Britain is expected to have more GDP growth.
While other economies in Europe were showing signs of recovery, Britain was embarking on lockdown and was way behind in reopening. It was until July 4 that it allowed restaurants and some shops to open, while Italy, although hardly hit, allowed opening in Mid-May. Germany started to reopen bookstores, bike shops and car dealerships on April 20.
The months of lockdown exerted a crippling economic impact on the UK’s GDP, as business activities including sports events were suspended. But in June when the economy gradually opened, the GDP recorded an increase of 8.7%, according to ONS. But it could do a little to salvage the already ravaged economy. Deputy national statistician for economic statistics, Jonathan Athow, said: “despite this, the gross domestic product in June still remains a sixth below its level in February, before the virus struck.”
While the lockdown took the larger part of the blame, it is believed that the economy was already heading in the direction of recession. Shadow chancellor Anneliese Dodds blamed Prime Minister Boris Johnson for the escalation of the economic downturn. He said: “a downturn was inevitable after lockdown – but Johnson’s job crisis wasn’t.”
Many workers have been sustained by the government’s furlough scheme of job subsidies, but it is due to end after October. Sunak said workers know that the scheme is “not sustainable indefinitely,” and the government shouldn’t pretend that “absolutely everybody can and will be able to go back to the job they had.”
While Sunak assured that the economy would bounce back, the time frame isn’t certain and there are signs it could get worse. Alpesh Paleja, an economist at the Confederation of British Industry, said companies are still finding it hard to pay their bills, and “a sustained recovery is by no means assured.” He added that “the dual threats of a second wave and slow progress over Brexit negotiations are also particularly concerning.”