UK records deepest recession among top economies
LONDON (AP) — Britain has suffered the deepest recession among the world’s top economies this year, shrinking by a fifth in the second quarter alone when much of the economy was mothballed as part of efforts to contain the coronavirus pandemic.
The 20.4% quarterly drop is the worst since records began in 1955, the Office for National Statistics said, and means Britain is in recession.
While many of the lockdown restrictions have since been eased, the country faces a tough time in coming months, with unemployment likely to spike as the government phases out a support program that has effectively kept nearly 10 million workers on company payrolls.
Britain’s recession is deeper than those recorded by comparable economies in Europe, notably Germany, France and Italy, or by the United States. Canada and Japan, the remaining members of the Group of Seven leading industrial nations, have yet to publish their second-quarter numbers but no economist thinks they will be as bad as the U.K.’s.
Kallum Pickering, senior economist at Berenberg Bank, said the main reason why the U.K. economy has fared worse is that the lockdown was introduced at “a later stage” in the virus outbreak, particularly when compared with others in Europe.
By the time Prime Minister Boris Johnson introduced the lockdown on March 23, the U.K. had “a bigger first wave” than could have otherwise been the case, meaning restrictions had to go on for longer. Shops in Germany, for example, reopened on May 6 compared with June 15 in England.
The U.K. has the highest official coronavirus death toll in Europe with 46,611 deaths. The actual toll is believed to be higher as the official dataset only incorporates those who have tested positive for COVID-19.
There is some hope that the economy is healing as lockdown restrictions are eased.
“The economy began to bounce back in June with shops reopening, factories beginning to ramp up production and house-building continuing to recover,” said statistician Jonathan Athow.
The British government hopes the economy will be helped by further measures such as the reopening of pubs and restaurants and a recommendation for office workers to return to their workplaces provided they are deemed COVID-safe.
However, Samuel Tombs, senior U.K. economist at Pantheon Macroeconomics, thinks the U.K. economy will likely “lag” others because of “structural disadvantages,” notably the fact that the economy is so dependent on consumer-facing businesses, where clearly human interactions are more important than in manufacturing or construction.
And it’s almost inevitable that unemployment will sky-rocket, potentially more than doubling to the 3 million mark last seen in the 1980s.
“I’ve said before that hard times were ahead, and today’s figures confirm that hard times are here,” said Treasury chief Rishi Sunak. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.”
So far, the British government has kept a lid on the official unemployment numbers through its Job Retention Scheme, which has given hard-pressed firms the opportunity to retain workers rather than fire them. Under the scheme, it has been paying a large chunk of the salaries of workers retained. Some 1.2 million employers have taken advantage of the program to furlough 9.6 million people at a cost to the government of 33.8 billion pounds ($44 billion).
Sunak is ending the program in October but insists “nobody will be left without hope or opportunity.”
Many, including unions and opposition lawmakers, are urging him to extend the program to sectors still suffering from restrictions.
“The best way to get our economy back on its feet is to keep people in work,” said Frances O’Grady, general secretary at the umbrella Trades Union Congress.
The British economy faces other headwinds besides the pandemic, notably uncertainty over its future trading relationship with the European Union following the U.K.’s departure from the bloc in January.
The U.K. is currently in a transition period whereby it remains part of the EU’s tariff-free arrangements until the end of the year. The future economic relationship has yet to be agreed upon, meaning tariffs could be imposed on traded goods between the two sides come the start of next year — a development that most economists think would further hobble an economy struggling to recover from the pandemic.