Official figures released on Wednesday by the Office of National Statistics (ONS) show the UK has officially entered its largest recession on record, demonstrating the havoc that coronavirus has been wreaking on the national economy.
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The UK’s Gross Domestic Product (GDP), the broadest measure of economic prosperity, fell by 20.4% in the second quarter, following a decline of 2.2% in the first quarter. This pushed the UK into its first technical recession (defined as two consecutive quarters of economic decline) in over a decade.
The enforced shutdown of business activity over the second quarter has been the biggest factor behind this slump. The widespread closure of shops, restaurants and hotels was inevitably going to affect the economy, which is heavily reliant on the services sector. Additional downward pressure resulted from a decrease in household spending, as people were forced to stay home for their safety.
Factory output also fell to dangerously low levels, with building sites continuously closed for a couple of months, leaving millions of workers unemployed or on furlough. The ONS revealed that output per worker fell by a fifth compared with the first three months of 2020 – a record fall in productivity.
As grim as these figures sound, not everything is bad news. With regards to consumer spending, the worst seems to be over, as the ONS reported signs of a cautious recovery in June as lockdown restrictions began to ease and shops reopened. The economy grew by 8.7% in June (on a month-on-month basis), after a growth of 1.8% in May. However, while these data seem encouraging, the economy is not expected to recover to its pre-pandemic levels at least until the end of next year, and possibly even beyond then.
The bigger crisis at hand is an impending wave of mass unemployment as government support measures are weaned off in the coming weeks. Job losses have already been on the rise, with recent figures showing the biggest decline since records began. The Bank of England estimates that the unemployment rate, which current stands at 3.9%, will hit 7.5% by the end of the year. Experts have warned that the tapering of government support schemes could hold further disastrous consequences for businesses that are still struggling to remain afloat during these challenging times.
The government’s response to the pandemic has been under fire, with some criticising its decision to enforce lockdown restrictions much later than other countries around the world and tapering them off at a slower pace. In fact, the UK has fallen into the deepest recession out of all the G7 nations in the second quarter, almost double the hit that the US took at 10.7% over the same period, and towards the higher end of the rate economic decline that other nations are experiencing.
Confirming the onset of the recession, the ONS has said that this decline in the second quarter had erased 17 years of economic growth in just two quarters, taking the level of GDP back to its levels in 2003.