Coronavirus infects UK economy
HARD TIMES Hit by a lockdown forced by pandemic, Britain’s GDP shrinks 6% even as Covid-19 continues to rage
of the Exchequer Rishi Sunak warned that the UK is facing a significant recession after a report showed the economy shrank almost 6% in March.
The sharp decline is only a small part of the damage of the coronavirus lockdown, which was in place for all of April and is set to endure in some form for months to come. The measures heaped misery on an already tepid economy, with the Bank of England foreseeing a staggering 25% contraction this quarter as part of the deepest slump in more than three centuries.
There was also a chilling warning that many more lives could be lost if Britain experiences a protracted L-shaped recession that increases poverty. The UK already has the second highest number of deaths from the virus worldwide.
The GDP figures highlight the monumental task the government faces as it begins to take small steps toward easing the lockdown. It’s extended an aid program for workers, and the central bank will probably pump even more stimulus into the economy to keep the motor running. Investors have already stepped up bets on more monetary easing.
The UK lockdown was imposed on March 23, meaning only about a week of the first quarter was affected. That was still enough for a 2% contraction in the three months, the worst since the global financial crisis more than a decade ago.
The damage in March was widespread, but the huge services sector took the brunt. Travel and tourism plunged 50%, while accommodation fell by 46% and air travel by 44%. Manufacturing
and construction also contracted.
The economy has now failed to grow for three of the previous four quarters, after months of political and Brexit uncertainty meant the UK entered the latest crisis on a weak footing. Bond investors expect a prolonged recession. Wednesday’s data sent the yields on two-year government bonds to a record low.
“The first quarter was that bad based on just a few days of the impact of coronavirus in March, so yes it is now very likely that the UK is facing a significant recession,” Sunak said in an interview with Sky News on Wednesday.
The Telegraph newspaper reported a leaked Treasury assessment about the cost of the crisis to the government. The “base case” saw the deficit, forecast at 55 billion pounds ($68 billion) before the pandemic, rise to 337 billion pounds. The “worst case” scenario saw it hit 516 billion pounds.