UK economy slumps 20% in Q2 due to COVID-19, unemployment fears mount

UK economy slumps 20% in Q2 due to COVID-19, unemployment fears mount

The spread of the coronavirus disease (COVID-19), in London
Shoppers walk past social distancing signs at the Covent Garden shopping and dining district, amid the spread of the coronavirus disease (COVID-19), in London, Britain, Aug 2, 2020. (REUTERS/Toby Melville)

LONDON: Britain's economy shrank by a record 20.4 per cent between April and June when the coronavirus lockdown was tightest, official figures published on Wednesday (Aug 12) showed.

It was the largest contraction reported by any major economy so far, and a wave of job losses is set to hit later in 2020.

Official figures also showed the world's sixth-biggest economy entered a recession as it shrank for a second quarter in a row.

There were signs of a recovery in the month of June when output grew by 8.7 per cent from May, the Office for National Statistics said, just above economists' average expectation in a Reuters poll for an 8 per cent rise.

Some analysts, however, said this likely reflected a catch-up in activity suppressed during lockdown.

READ: UK suffers biggest job losses since 2009 as COVID-19 hits

The scale of the hit to gross domestic product may revive questions about Prime Minister Boris Johnson's handling of the COVID-19 pandemic.

Britain has suffered Europe's highest death toll, with more than 50,000 deaths linked to the disease between Mar 1 and Jun 30, according to the ONS.

"The recession brought on by the coronavirus pandemic has led to the biggest fall in quarterly GDP on record," Jonathan Athow of the Office for National Statistics said.

"The economy began to bounce back in June... Despite this, GDP in June still remains a sixth below its level in February, before the virus struck."

Last week the Bank of England forecast it would take until the final quarter of 2021 for the economy to regain its previous size, and warned unemployment was likely to rise sharply.

READ: Two-thirds of UK firms 'fully operational' after COVID-19, survey says

The second-quarter slump in GDP was almost exactly in line with economists' average forecast in a Reuters poll, and exceeded the 12.1 per cent drop in the euro zone and the 9.5 per cent quarter-on-quarter fall in the United States.

"Today's figures confirm that hard times are here," finance minister Rishi Sunak said. "Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will."

The level of output in June was 16.8 per cent below its level a year earlier, compared with a 23.3 per cent fall for May.

Suren Thiru, an economist with the British Chambers of Commerce, said the pick-up towards the end of the quarter probably only reflected the release of pent-up demand rather than the start of a sustained revival.

"The prospect of a swift 'V-shaped' recovery remains remote as the recent gains in output may fade over the coming months as the economic damage caused by the pandemic increasingly weighs on activity, particularly as the government support measures wind down," he said.

LATER LOCKDOWN

British GDP shrank by 2.2 per cent in the first quarter of the year, reflecting the lockdown that started on Mar 24.

Britain went into lockdown in late March, after other European countries, meaning more of the hit was reported in the second quarter than in the first three months of the year when Britain's economy shrank by less than the euro zone's.

READ: We will be past COVID-19 by mid-2021: UK PM Johnson

The ONS said that over the first six months of 2020, British GDP fell by 22.1 per cent, slightly less than Spain's 22.7 per cent contraction but more than double the 10.6 per cent fall in the United States.

"The larger contraction of the UK economy primarily reflects how lockdown measures have been in place for a larger part of this period in the UK," it said.

Non-essential shops in England did not reopen to the public until Jun 15, and pubs and restaurants were shut until Jul 4 as part of lockdown measures.

Some sectors of the economy appear to have made a rapid recovery.

READ: Fine art and face masks: London's Victoria and Albert Museum reopens amid COVID-19

Previously published ONS retail sales data for June showed spending, excluding fuel, was above year-ago levels and Barclaycard figures suggested overall consumer spending was close to pre-crisis levels in July.

READ: UK's Heathrow Airport passenger numbers down 88% amid ongoing travel restrictions

But businesses are wary about the outlook, and unemployment risks rising sharply towards the end of this year when a job support programme ends.

Employers have already shed more than 700,000 jobs since March, according to tax data. 

Source: Reuters/kv

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