Bri­tain col­lapses into worst ever re­ces­sion

UK economy con­tracts by 20.4pc in sec­ond quar­ter in big­gest blow to al­most any ma­jor coun­try

The Daily Telegraph - Business - - Front Page - By Lizzy Bur­den and Tim Wal­lace

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.

Lizzy Bur­den

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, 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.

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