Daily Management Review

Record Quarterly Slump In UK Economy In Q2, Pushed Into A Deep Recession


Record Quarterly Slump In UK Economy In Q2, Pushed Into A Deep Recession
The United Kingdom reported its worst ever quarterly drop for the second quarter with a 20.4 per cent slump in its Gross Domestic Product (GDP). This pushed the country into the worst recession being encountered by any major economy.
The second quarter cash in UK’s GDP compared to the previous quarter was the worst ever for the country since records were started to be kept in 1955. There were record slump in the services, production and construction industries which were exposed most to government lockdown measures implemented to prevent the spread of the novel coronavirus pandemic.
"Today's figures confirm that hard times are here," UK finance minister Rishi Sunak said in a statement.
"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," he said.
According to data from the Office for National Statistics, in the first six months of 2020, there was a cumulative drop of 22.1 per cent in UK’s economic output compared with the end of 2019. That was worse than that of Germany, France and Italy and was double of the 10.6 per cent drop in output in the United States.
Analysts and economists expect to see a less severe than Britain decline in GDP among the remaining G7 economies. For example, Canada expects a 12 per cent drop in its second quarter GDP compared to the first quarter according to the country’s statistics agency. On the other hand, economists expect a 7.6 per cent quarter-on-quarter drop in the GDP of Japan for the second quarter.
"The larger contraction primarily reflects how lockdown measures have been in place for a larger part of this period in the UK," the ONS said.
On the other hand, China, where the novel coronavirus first emerged and later spread to all parts of the world, has already returned to growth after starting the year with the worst figures in decades.
Despite a rise in coronavirus cases, a strict lockdown s imposed by the UK two weeks after Italy had done so and 10 days after Spain. France had imposed a lockdown a week before Britain. That resulted in the UK taking longer to get the spread of the virus under control and thereby the restrictions had to be prolonged keeping most businesses closed.
Services and household spending account for a large chunk of the UK economy. In the second quarter, both these sectors posted record declines as people forced to stay indoors because of the pandemic spent less and saved more. In addition, millions of workers were furloughed and many have now been laid off.
Since the coronavirus pandemic severely hit British businesses in March, about 730,000 jobs have been lost in the country. The unemployment crisis has hit the young, the old and the self-employed alike.
The GDP figures of UK do not carry a good signal for the economy for the rest of the year, said Kallum Pickering, a senior economist at Berenberg.
"Typically, recession data are subject to heavy revisions," he said in a research note.
"Nevertheless, taken at face value, the bigger-than-expected contraction suggests some downside risk to our call of a 9.5% contraction in full year 2020."