Today's GDP figures show the UK economy is now 22 per cent smaller than it was at the end of 2019. This makes it an official recession and is the steepest decline in activity on record.
Given the impact of the pandemic and the necessary measures taken to protect public health, a hit to the economy was inevitable, but the longer-term scale and depth of the recession is not.
The Chancellor may be willing to accept that many more people will lose their jobs, but there is an alternative. Investment in public services, social care, green jobs, skills and extending the furlough scheme where it is needed will help us recover from this crisis.
The time for ‘wait and see’ is over, the government must act now.
Today’s GDP Figures
Today’s figures confirmed what many feared: the second quarter of 2020 (April – June) showed the worst fall of GDP on record a fall of 20.4 per cent, meaning the UK economy has contracted 22 per cent over the first half of the year and is now ‘officially’ in recession.
Demand has fallen across the board with household consumption falling by 23 per cent, business investment falling by 31 per cent and even government expenditure declining 14 per cent in quarter two.
Figure 1: GDP, 2020Q2 – steepest decline in activity on record.
These quarterly figures for the UK are not only the worst on record, they are also some of the worst in comparison with international counterparts. Only Spain has seen a worse decline over the two quarters.
The contraction in GDP is likely to be the worst of the G7 economies (Canada figures are not yet available), and as the Office for National Statistics notes, it is already double that of the United States.
Figure 2: GDP, Q2020 In comparison to other countries, the UK has experienced one of the worst declines in GDP.
The ‘bounce back’ is subdued at best
Monthly GDP figures also continue to demonstrate the challenges facing the UK. Following a combined fall in GDP of 27 per cent between March and April (6.9 per cent in March and a record 20 per cent in April), May saw a small improvement of 2.4 per cent growth, followed by the latest figures for June, which showed GDP growth of 8.7 per cent on the previous month.
Figure 3: Monthly GDP improves but is still significantly below February levels.
As lockdown restrictions eased, some recovery in GDP was to be expected, but the bounce back has been underwhelming with GDP still 17 per cent lower than February of this year. The robust ‘V-shaped’ recovery many hoped for is struggling to materialise.
Headline industry output figures show a similar path, particularly in services which saw a decline of 19.9 per cent for the quarter. Production fell 16.9 per cent, but manufacturing saw a steeper decline in line with headline figures of 20.2 per cent. Construction output, having seen a record fall in April of 40 per cent across all types of work, saw a 35 per cent decline in output for the quarter.
Figure 4: All industries remain below their February output levels.
Looking in more detail at service industries (which account for around 80 per cent of our economic output and employment) we can see there are significant differences in declines in output between different service types (chart below, which also includes headline figures for GVA, manufacturing and construction).
Accommodation and food, one of the sectors most impacted by lockdown restrictions, saw a decline of nearly 91 per cent at its peak. Latest figures show current output declining just over 83 per cent.
With the exception of finance, public admin, ICT and real estate, most service sectors have experienced steep declines since the start of lockdown and current figures suggest they are continuing to struggle to rebound.
Figure 5: GDP declines by industry
“Hard times ahead”?
Many people have already lost their jobs during this pandemic. The latest payroll (PAYE) figures suggest 730,000 fewer employees are on business payroll registers than in March before lockdown began.
With daily announcements of mounting job losses across the country, and some forecasts suggesting unemployment could reach up to 4.5 million by the end of the year, it is clear that without action from the government, the hardest times are yet to come.
The chancellor said no person will be left without hope or opportunity, but hope won’t pay the bills. Without further government action and a clear plan to protect jobs and create new ones, many working people will face hardship and uncertainty in the coming months.
Ministers cannot wait any longer to see how this crisis unfolds. We must take action now by extending the job retention scheme for companies that have a viable future but need support beyond October, and improve the social safety net for those who do lose their jobs. We must create the decent jobs we need for the future by investing in green industries, social care and across the public sector.
As we outline in our ‘Rebuilding after the recession’ report, the best way to recover from this crisis is to protect incomes and jobs. The more jobs we protect, the faster the faster we will recover.
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