8.6 C
New York
Saturday, October 16, 2021
Home World News U.K. economy plunges 20% as nation enters deepest recession on record

U.K. economy plunges 20% as nation enters deepest recession on record


The United Kingdom’s economy shrank by a record 20.4 per cent 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 U.K. Prime Minister Boris Johnson’s handling of the pandemic, with England suffering the highest death toll in Europe. More than 50,000 U.K. 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 per cent below its pre-pandemic level.

Growth restarted in May and quickened in June, when the economy expanded by a monthly 8.7 per cent — a record single-month increase and slightly stronger than forecasts by economists in a Reuters poll.

However, some analysts said the bounce-back was unlikely to be sustained.

Prime Minister Boris Johnson’s handling of the pandemic is being questioned after the U.K.’s economy plummeted 20 per cent. (Christopher Furlong/WPA Pool/Getty Images)

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.

Any decision to pump more stimulus into the economy by the Bank of England and finance minister Sunak 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 GDP slump exceeded the 12.1 per cent drop in the eurozone and the 9.5 per cent fall in the United States.

Some economists said the sharper decline partly reflected the timing of U.K.’s lockdown — which fell more in the second quarter — and its dependence on domestic consumer spending.

Pent-up demand

Suren Thiru, an economist with the British Chambers of Commerce, said the recent pick-up 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.

The nation’s unemployment rate is expected to jump when the government ends its huge job subsidy program in October.

A wave of job losses is set to hit the U.K. later in 2020 as the ripple effects of the economic contraction are felt. (Simon Dawson/Reuters)

Sunak — who told the BBC he saw some “promising signs” in GDP data for the month of June — reiterated his opposition to extending the program.

In July, he cut sales tax for the hospitality sector and in August is subsidizing 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.

Later lockdown

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

It closed restaurants, shops and other public spaces after many other European countries, meaning more of the hit was felt in the second quarter.

However, the Office for National Statistics said that over the first six months of 2020, GDP fell by 22.1 per cent, slightly less than Spain’s 22.7 per cent but more than double the 10.6 per cent fall in U.S.

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

Non-essential shops in England did not reopen until June 15, and pubs and restaurants were shut until July 4.

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. (Leon Neal/Getty Images)

Sunak, as well as some economists, said the U.K.’s greater reliance on consumer-facing services businesses — many of which were completely shut in the lockdown — also explained why the economy suffered more than its peers.

In both the U.K. and Spain, spending on hotels, restaurants, recreation and culture make up around 13 per cent of the economy, compared with around 10 per cent or less elsewhere in Europe and the United States.

Although some sectors appear to have made a rapid recovery, businesses are wary about the outlook, especially as a second wave of COVID infections could lead to the reimpositions of lockdowns.

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



Source link

Today news
Today News 1 runs four of the western GTA’s most influential media websites, offering news, food, lifestyle and entertainment coverage for millions to the Golden Horseshoe and GTA regions. The independently-run, online news source was founded in 2019 and specializes in everything from breaking news to food and restaurant, arts and entertainment and lifestyle coverage.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisment -

Most Popular

Does the U.S. need a trillion-dollar coin?

There's an idea floating around that is undoubtedly crazy. But it has gained traction and support from some of the biggest economic thinkers...

U.S. confirms it will accept Canadian travellers with mixed vaccines

Canadians with mixed vaccines and U.S. travel plans can breathe a sigh of relief tonight.  Following weeks of speculation, the United States...

Ontario venues say new COVID-19 rules create ‘double standard’ for standing concerts

Indoor concerts are slowly coming back to life in Ontario, but venue owners say the latest COVID-19 guidelines will dampen any significant return...

Schitt’s Creek star Noah Reid to make Broadway debut in The Minutes

Schitt's Creek star Noah Reid is set to make his Broadway debut. Producers say the Toronto actor and musician, who played Patrick on...

Recent Comments