UK economy shrinks 20% in second quarter, unemployment fears rise

LONDON (Reuters) – Britain’s economy shrank a record 20.4% between April and June, when the coronavirus lockdown was tightest, the sharpest contraction reported by a large economy to date, with a wave of job losses expected to hit later in 2020.

Official figures released on Wednesday also showed that the world’s sixth largest economy entered recession as it contracted for a second consecutive quarter.

There were signs of recovery in June when output rose 8.7% from May, the Office for National Statistics said, just above average expectations of economists in a Reuters poll for a 8% increase.

Some analysts, however, said this likely reflected a catch-up in suppressed activity during the lockdown.

The scale of the impact on gross domestic product may rekindle questions about Prime Minister Boris Johnson’s handling of the COVID-19 pandemic.

Britain suffered the highest death toll in Europe, with more than 50,000 deaths linked to the disease between March 1 and June 30, according to the ONS.

“The recession triggered by the coronavirus pandemic led to the biggest quarterly GDP decline on record,” said Jonathan Athow of the Office for National Statistics.

“The economy started to rebound in June… Despite this, GDP in June is still one sixth below its February level, before the virus struck.

Last week, the Bank of England predicted that it would take until the last quarter of 2021 for the economy to return to its previous size, and warned that unemployment is likely to rise sharply.

The second-quarter GDP decline was almost exactly in line with economists’ average forecast in a Reuters poll, and exceeded the 12.1% drop in the euro area and the 9.5% quarter-on-quarter decline in the United States. United.

“Today’s figures confirm that hard times are here,” said Finance Minister Rishi Sunak. “Hundreds of thousands of people have already lost their jobs, and unfortunately, in the months to come, many more will.”

The level of production in June was 16.8% below its level a year earlier, compared to a 23.3% drop in May.

Suren Thiru, an economist with the British Chambers of Commerce, said the recovery towards the end of the quarter likely only reflected the release of pent-up demand rather than the start of a sustained recovery.

“The prospect of a rapid V-shaped recovery remains remote, as recent production gains are likely to fade over the coming months as the economic damage from the pandemic weighs more and more on activity,” especially with the end of government support measures, ”he told me.

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UK GDP fell 2.2% in the first quarter of the year, reflecting the lockdown that began on March 24.

Britain went into lockdown at the end of March, following other European countries, meaning more of the coup was reported in the second quarter than in the first three months of the year, when the UK economy shrank less than that of the euro area.

The ONS said that in the first six months of 2020, UK GDP fell 22.1%, slightly less than Spain’s 22.7% contraction but more than double the drop in 10.6% in the United States.

“The larger contraction of the UK economy primarily reflects the way foreclosure measures have been in place for much of this period in the UK,” he said.

Non-essential stores in England only reopened to the public on June 15, and pubs and restaurants were closed until July 4 as part of the lockdown measures.

Some sectors of the economy appear to have made a rapid recovery.

Previously released ONS retail sales data for June showed spending, excluding fuel, to be higher than the previous year’s levels, and Barclaycard figures suggested overall consumer spending was close to levels of before the crisis in July.

But businesses are wary of the outlook, and unemployment is likely to rise sharply towards the end of this year when an employment support program ends.

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