Britain collapses into worst ever recession
UK economy contracts by 20.4pc in second quarter in biggest blow to almost any major country
THE economy plunged into the deepest recession on record in the second quarter of 2020 as Britain suffered a bigger blow from its Covid lockdown than almost every other major country.
GDP collapsed by 20.4pc between April and June, the worst three-month fall ever recorded according to the Office for National Statistics (ONS).
The contraction followed a 2.2pc dip in the first quarter, sending the country into a technical recession defined as two straight quarters of contraction.
Overall, this blow was more severe than any large nation apart from Spain – and twice as big as the damage done to the US. It means Britain has both one of the world’s highest death tolls and hardest-hit economies.
However, recovery has already begun. The fall bottomed out in April, followed by modest growth in May and then an unprecedented 8.7pc monthly increase in June as the country got back to work in the first signs of a possible rapid “V-shaped” recovery. The start of the quarter was so bad that overall, the economy still finished the period over a fifth smaller.
The peak-to-trough contraction was six times faster and four times deeper than during the financial crisis. It comes a day after separate ONS figures showed employment fell by the most for over a decade during the quarter, with many more cuts expected in coming months as the taxpayer-funded furlough scheme ends.
Rishi Sunak, the Chancellor, said: “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.
“While there are difficult choices to be made, we will get through this, and I can assure people nobody will be left without hope or opportunity.”
Samuel Tombs, of Pantheon Macroeconomics, said poor performance was driven by the length of lockdown in the second quarter. Some experts believe Britain could have been shut for a shorter time if action had been taken earlier, lessening the economic impact. Mr Tombs added that the fall in GDP could also be attributed partly to the country’s long reliance on services, which include many jobs such as in retail and hospitality that cannot be done from home.
Former Treasury minister Lord O’Neill said that Britain’s relatively large service sector is no excuse for policymakers not “thinking more carefully before deploying the blunt tool of a mass shutdown”.
He said: “It’s not as though our system-wide shutdown resulted in better health outcomes.”
The UK’s official Covid death toll stands at more than 41,000, the highest in Europe and fifth biggest worldwide.
The hospitality industry was only allowed to reopen in July, so was particularly devastated between April and June with almost all outlets closed. Output in accommodation and food services was almost completely wiped out, falling 86.7pc.
Education was down more than a third, with almost as large a blow in several other major industries including administrative and support services, and transport and storage. Even human health and social activities shrank by more than one quarter, despite a clamour for more health and care home staff to avoid disaster.
The high street was trashed with wholesale, retail and motor trades down by a fifth, although there was a recovery as the quarter ended and with more shops being allowed to open.
In June, retail output had recovered to just 6.3pc below its February level from a peak-to-trough fall of more than a third. Manufacturing tumbled by just over a fifth, with almost every industry affected. The crash in car sales meant output of transport equipment fell fastest, down by almost half.
In construction, output collapsed by a record 35pc in the quarter as building sites shut down to halt the spread of the virus. New private housing was hardest hit with output cut by more than half. However, the industry is also recording a rapid bounceback. Monthly output in June surged by 23.5pc, a record, which leaves output down by just under one-quarter compared with February’s level.
Hundreds of thousands have already lost their jobs. Many more will.
BUSINESS leaders have urged the Chancellor to slash taxes or face longterm economic damage after productivity suffered a record quarterly fall and Britain plunged into a historic recession.
Chief executives and lobby groups have said that Rishi Sunak’s autumn Budget must be the most corporatefriendly in history to stave off total disaster.
They highlighted grim data showing that productivity dropped in every sector of the economy between April and June. The largest fall was in construction, where the output per hour worked plunged 11.4pc from the previous quarter, and the smallest in manufacturing, which posted a 0.3pc drop.
Overall output per hour fell 2.5pc between April and June, the most since records began, according to the Office for National Statistics (ONS).
National insurance cuts, support for retail rents, deregulation and a huge investment in innovation will be vital if a meltdown is to be avoided, experts said. Mike Cherry, chairman of the Federation of Small Businesses, urged an end to unnecessary red tape and heavy spending on infrastructure such as broadband.
He said: “We need the most probusiness, pro-self-employed Budget ever this autumn, one that lowers the costs of innovating and bringing great goods and services to market and eschews tax rises.”
ONS data this week showed that the number of people in work tumbled by the most for a decade in the second quarter as lockdown destroyed hundreds of thousands of jobs. Even steeper cuts are expected when the taxpayer-funded furlough scheme ends in October.
Economists have warned that even though GDP started to recover in May and June, the risk of economic scarring remains high as legions of workers become unemployed and lose their skills.
Tej Parikh, chief economist of the Institute of Directors (IoD), said: “Job losses have been mounting and may only increase as we reach the end of the furlough scheme. The pile of debt businesses have had to take on could also cause a lasting hangover.”
The IoD and the British Chambers of Commerce urged the Chancellor to cut employers’ national insurance contributions to reduce job losses.
Paul Johnson, director of the Institute for Fiscal Studies, said the fall in output per worker was likely to have been caused by lower demand and the impact of working from home.
He added that the hit to productivity should be less long-standing than the unemployment crisis.
Mr Johnson said: “If the number of jobs goes down, and it’s the least productive jobs that go, often – though we didn’t get this last time – you get an upturn in productivity numbers because it’s the less productive workers who lose their jobs.”
He said that there could be a role for the Government in employing laid-off construction workers to build schools and hospitals, given demand for new office blocks is expected to fall as more staff work from home.
Meanwhile, the British Retail Consortium (BRC) is seeking a so-called property bounceback grant through which the Treasury would cover half of unpaid rents across retail, leisure and hospitality for six months at a cost of £1.8bn.
Engineering companies are also concerned, with high-end firms fearing they will suffer due to a plunge in
‘Take it from someone who started their online business in the dotcom crash this … isn’t a normal recession’
global air travel. Paul Everitt, chief executive of the aerospace trade organisation ADS, said: “We are worried.
“There’s a significant risk we will lose key capabilities and capacity in the UK aerospace industry. We need increased research and development expenditure.”
Some business leaders were more positive. John Roberts, the boss of online white-goods seller AO.com, said: “This isn’t a normal recession, there’s still lots of opportunity out there and the recovery is under way. Take it from someone who started their online business in the dotcom crash.”
Similarly, Kenny Wilson, the chief executive of Dr Martens, claimed the retailer would continue to invest in the business despite the economic downturn. He said: “The economic hit [to sales] was not as big as we expected, we’ve been adding people.”
Julian Jessop, a fellow at the Institute for Economic Affairs, said the fall in productivity was to be expected given that during a recession firms tend to focus on preserving jobs so they can avoid the cost of firing and then rehiring workers.
Firms must also find new suppliers and customers, he said, which can distract managers from improving productivity.