British Prime Minister Boris Johnson. Picture: GETTY IMAGES/MIKHAIL SVETLOV
British Prime Minister Boris Johnson. Picture: GETTY IMAGES/MIKHAIL SVETLOV

London — The UK suffered more than any major European economy during the coronavirus lockdowns, raising questions over the government’s handling of the pandemic and putting it under renewed pressure to deliver a recovery.

The 20.4% slump in the second quarter, the biggest since records began in 1955, also outstripped the US downturn and officially pushed Britain into its first recession since 2009. It follows a report on Tuesday that showed that hundreds of thousands of people had lost their jobs.

The figures add to evidence that Britain is paying a heavy price for being slower than most of its peers to enter a lockdown in March. The country also has Europe’s highest death toll from the coronavirus.

“The long duration of the lockdown in the second quarter, due to the government’s slow response to Covid-19 in March, followed by its failure to prevent the virus from spreading from hospitals, was at the root of the economy’s underperformance,” Samuel Tombs, chief UK Economist at Pantheon Macroeconomics, wrote in a report.

While a recovery is under way as restrictions are eased — UK output jumped a record 8.7% in June — high frequency data such as credit card spending and electricity use are still well below pre-pandemic levels. They’ve more or less recovered in other major European economies, according to Bloomberg Economics.

There are other worrying signs that the upturn could soon run out of steam.

Localised jumps in infections have heightened concerns over more shutdowns, government wage support is being phased out, and companies face higher tariffs should Britain fail to agree a trade deal with the EU by the end of 2020.

“I’ve said before that hard times were ahead, and today’s figures confirm that hard times are here,” Chancellor of the Exchequer Rishi Sunak said following the release. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.”

Adding to the sense of uncertainty, the Financial Times reported late on Tuesday that Sunak was weighing up options to shelve his autumn budget if Britain were hit by a big second wave of the coronavirus.

Wednesday’s figures showed the damage in the second quarter was widespread, with the construction industry alone seeing a 35% contraction. Services, the biggest part of the economy, shrank 20% and industrial production plunged 17%. Construction led June’s rebound, while services increased a more modest 7.7%.

In a sign that the dramatic contraction was expected, the pound barely moved after the report, and was little changed at $1.3047 as of 7.44am In London.

The report also showed the following:

  • The peak to trough decline in GDP between February and April was 25.6%
  • Government spending fell 14%, while business investment plunged 31.4%
  • Consumer spending declined 23.1%
  • Productivity, as measured by output per hour, fell a record 2.5%
  • The hospitality industry saw the biggest drop in productivity, tumbling 75%
  • Wages and salaries fell 1.6%, the first decline since 2015 and the largest since 2008

The Bank of England has highlighted the labour market as a key concern, with officials fearing a jump in unemployment when government job support is withdrawn later this year. Data on Tuesday showed the number of employees on payrolls was already down about 730,000 compared with March.

The central bank, which has pumped billions of pounds into the financial system through bond purchases and lending programmes and has cut its key interest rate to near zero, warns that the longer the recovery takes, the greater the risk of economic “scarring”.

Bloomberg

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