And now for something different … the recovery has already begun
‘What really matters is how fast the economy claws its way back up to its prepandemic level’
The bad news is that the UK has suffered a historic recession of truly epic proportions. The good news is that it has already been over for months, because the recession ended as quickly as it began.
GDP fell in March and in April. Growth returned in May, so the recovery has already been going for longer than the recession.
It only just ticks the box to match the usual definition of a recession, which is two consecutive quarters of falling GDP. If the virus had struck a few weeks later, it would all have come in the second quarter, leading to a strange position of one huge collapse but not an “official” recession.
This is the shortest recession on record. Indeed, it is the shortest possible recession.
So much for the technicalities. The official definition of a recession is hardly the most important challenge facing the UK. What really matters is how fast the economy claws its way back up to its pre-pandemic level.
How soon will people return to their old patterns of behaviour, or at least equivalent levels of spending and working, even if they do it in a slightly different way?
It should, in theory, be possible to get back to normal almost as fast as the official restrictions lift and industries are allowed to get back to work.
Unlike a “normal” business cycle recession, this was caused by businesses closing their doors and flicking the switch off for reasons of public health. So a recovery can take place as bosses walk back in and flick the switch back on. That is why the economy had already recovered a third of its lost ground by June.
Andy Haldane, the Bank of England’s chief economist, said in late July that he thought half of the lost ground had been recovered.
It means a month-on-month chart of GDP looks like the beginnings of the letter V. “So far, so V”, as Haldane put it.
The furlough scheme should help with this. If businesses had been ordered to shut down but offered no help, they would have had to lay off millions of workers. Instead the Government picked up the tab, and the workers are still there and able to return to the office, factory or shop immediately.
There should be more to come. The hospitality industry was only able to reopen from July 4, so was closed for the entire second quarter from April to June. The sector is ripe for a recovery.
Yet its plight also illustrates the difficulties of getting back up to February’s production levels rapidly – completing the V-shape. If they cannot get back to their full capacity, because of social distancing rules or customers’ caution or a lack of tourists, then the “V” will fall short.
As unemployment rises in those industries that fail to rebound, the risks rise that households cut spending and a weakness in one sector spreads to another.
It is going to be a very close-run thing. The political warfare over the recession began instantly.
Britain was the hardest-hit major economy in the second quarter, making for unfavourable comparisons and an open goal for any opposition politician. In part this is because much of the rest of Europe was hit earlier. That means those nations suffered worse first quarter numbers than the UK, largely in March, with less of the hit falling in April.
To see the overall damage wrought on economies by the pandemic it is better to look at the first half of the year. Spain has suffered the biggest blow, down 22.7pc, says Oxford Economics, with the UK close behind at 22.1pc.
Italy, India, Portugal, Mexico and France all suffered drops of between 17pc and 19pc.
The US and Japan found their economies shrank by a mere 10pc or so.
That is still painful for the UK, with its services-based economy that often means dealing with customers face to face. Yet the purpose of the exercise is not to flatter, but to get an accurate picture.