Plummeting economic growth shows why we need a plan to build back better

The latest GDP figures from the ONS are out today and they’re not pretty.

In March GDP plummeted by a -5.8% – the worst monthly decline on record by far. That means GDP for the whole of the first quarter fell by -2 – the worst decline since the 2008 financial crisis.

With large parts of the economy wholly or partly shutdown, we expected GDP to fall sharply. But it’s worth stressing that we only entered full lockdown on 23 March. We won’t see the full extent of the economic crisis brought on by Covid-19 till Q2.

So while today’s GDP figures are shocking, they aren’t surprising. What's important now is having the right plan for Britain's economic recovery.

Today’s figures unpacked

On top of the topline GDP numbers, the figures released by the ONS today examine the full impact of the Covid crisis across different industries.

This analysis shows that “nearly every aspect of the economy was hit in March”, with record on the month declines in the services and construction sector and education, car sales and restaurants all falling substantially.

Very few industries recorded any growth, but those that did included IT support and the manufacture of pharmaceuticals, soaps and cleaning products.

The monthly percentage change in industrial output by sector is shown on the next chart. We can see that the accommodation and food services sector (hotels, B&Bs, restaurants etc) has seen output plummet by almost a third.

Behind the figures is a tragic human story of how this pandemic has transformed our lives and plunged millions into financial insecurity.

That’s why the TUC and our affiliate unions have been working so hard to protect jobs and livelihoods during this terrible crisis.

Worse news to come

Sadly, today’s figures only hint at the severity of the economic disruption to come and concerns about what that will mean for millions of workers.

We know 2.6 million people have already claimed universal credit since March. This is despite the fact that government has been covering 80% of wages for all employees furloughed under the job retention scheme (JRS) that unions helped to negotiate.

That’s why we are so concerned about what happens as restrictions are lifted and people gradually return to work.

The government has now begun to think about how it will support workers through the recovery phase. Yesterday’s announcement that JRS will be extended to October is a big win for unions, but much more will be needed.

The TUC is calling for a Job Guarantee Scheme to prevent problems with long-term unemployment. And we need a programme of public investment so that we can build back better, with jobs for everyone, fairer work and a greener economy.

Invest to bounce back better

This means ongoing major support to the economy from the government. The recovery document published by the Treasury yesterday included some of the right noises, such as “investing in supporting an economic bounce back”.

On the other hand, official forecasts by the Bank of England and OBR are predicting a very fast return to normality in economic growth, as the following chart shows.

Comparison of GDP scenarios

The OBR and Bank of England do not discuss whether the scenario is contingent on government support continuing into the recovery phase. NIESR go further by suggesting “… more conventional [fiscal] policy support may be needed. This can be directed at delivering the government’s plans to level up the regions and improve the national infrastructure”.

Time to reset the economy

The recovery phase will be fraught with danger, not least because of the fragility of the economy going into the pandemic.

The government will need to intervene strategically and substantially to support the economy and protect livelihoods.

And much will need to change to meet the challenges to come.

Coronavirus has thrown a harsh light on injustices in our economy which can’t be allowed to fester any longer.

We have a plan to break down these economic inequalities and build back better.

The TUC will be outlining our thoughts in a report issued next week that we’ll launch through an online webinar.

The launch will take place at 10 am on 20 May 2020 with Frances O’Grady, TUC General Secretary, Anneliese Dodds, Shadow Chancellor and Martin Sandbu of the Financial Times. Register for the online event.