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- Wave of job losses feared after data shows record 20 percent economic hit
LONDON: Britain’s economy shrank by a record 20.4 percent in the second quarter when the coronavirus lockdown was tightest, the most severe contraction reported by any major economy so far, with a wave of job losses set to hit later in 2020.
The scale of the economic hit may also revive questions about Prime Minister Boris Johnson’s handling of the pandemic, with Britain suffering the highest death toll in Europe. More than 50,000 UK deaths have been linked to the disease.
“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 data confirmed that the world’s sixth-biggest economy had entered a recession, with the low point coming in April when output was more than 25 percent below its pre-pandemic level.
Growth restarted in May and quickened in June, when the economy expanded by a monthly 8.7 percent — a record single-month increase and stronger than forecasts by economists in a Reuters poll.
However, some analysts said the bounceback was unlikely to be sustained.
Last week the Bank of England (BoE) 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.
Any decision to pump more stimulus into the economy will hinge on the pace of growth in the coming months, and whether the worst-hit sectors such as face-to-face retail and business travel ever fully recover.
The second-quarter gross domestic product (GDP) slump exceeded the 12.1 percent drop in the euro zone and the 9.5 percent fall in the United States.
Some economists said the sharper decline partly reflected the timing of Britain’s lockdown — which fell more in the second quarter — and its dependence on domestic consumer spending.
Suren Thiru, an economist with the British Chambers of Commerce, said the recent pickup probably only reflected the release of pent-up demand rather than a sustained revival.
“The prospect of a swift ‘V-shaped’ recovery remains remote,” he said.
Britain’s unemployment rate is expected to jump when the government ends its huge job subsidy program in October.
Sunak said he saw “promising signs” in GDP data for June and reiterated his opposition to extending the program. In July he cut sales tax for the hospitality sector and in August is subsidising restaurants to draw in diners.
Hotels and restaurants did just one fifth of their normal business in June, when the lockdown was still largely in force.
British GDP shrank by 2.2 percent in the first quarter of the year, reflecting the lockdown that started on March 24.