UK economy in record slump

• Posted on June 12, 2020June 12, 2020
• by Nana Kwesi Coomson
• Comment

The UK’s economy shrank by 20.4% in April – the largest monthly contraction on record – as the country spent its first full month in lockdown.

The Office for National Statistics (ONS) said the “historic” fall affected virtually all areas of activity.

The contraction is three times greater than the decline seen during the whole of the 2008 to 2009 economic downturn.

But analysts said April was likely to be the worst month, as the government began easing the lockdown in May.

The ONS also published figures for the three months from February to April, which showed a decline of 10.4% compared with the previous three-month period.

“April’s fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost 10 times larger than the steepest pre-Covid-19 fall,” said Jonathan Athow, deputy national statistician for economic statistics at the ONS.

“In April, the economy was around 25% smaller than in February.

“Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall.”

Carmakers and housebuilders were particularly badly hit, Mr Athow added.

However, he told the BBC’s Today programme: “It’s highly likely April will be the low point.

“Our own surveys and wider indicators have suggested a pick-up in economy activity, but I think it’s really too early to know how quickly economic activity will recover in the coming months.”

Chancellor Rishi Sunak said: “In line with many other economies around the world, coronavirus is having a severe impact on our economy.

“The lifelines we’ve provided with our furlough scheme, grants, loans and tax cuts have protected thousands of businesses and millions of jobs – giving us the best chance of recovering quickly as the economy reopens.

“We’ve set out our plan to gradually and safely reopen the economy. Next week, more shops on the High Street will be able to open again as we start to get our lives a little bit more back to normal.”

Deep recession

During the global financial crisis, from the peak in February 2008 to the lowest point of March 2009, a total of 13 months, GDP shrank by 6.9%.

April’s unprecedented contraction is three times that.

The UK’s economy was already shrinking even before April.

It contracted by 2% in the first three months of 2020, as just a few days of impact from the virus pushed it into decline.

Economists expect an even bigger slump in the April-to-June period, plunging the country into a deep recession.

“Given the lockdown started to be eased in May, April will mark the trough in GDP. So we are past the worst,” said Andrew Wishart, UK economist at Capital Economics.

“But the recovery will be a drawn-out affair, as restrictions are only lifted gradually and businesses and consumers continue to exercise caution.

“And while the trough in activity is now behind us, the fiscal cost of the collapse and the rise in the unemployment rate to over 8% that will result are only just starting to emerge.”

Tej Parikh, chief economist at the Institute of Directors, said coronavirus had caused “unparalleled” economic turmoil which was “likely to scar the UK economy for some time yet”.

“Having provided businesses life support, the government must now figure out how to stimulate activity,” he added.

“Waiting until later in the year to act will risk more businesses and jobs will be lost.”

-BBC