After a decline of 2.2% in the first quarter, the figures confirm the UK economy plunged into recession after the outbreak spread in March and the government imposed a nationwide lockdown to contain it. Economists consider two consecutive quarters of shrinking GDP as the technical definition of a recession.

However, monthly figures for the economy indicate that Britain’s economy continued to recover from the pandemic in June as lockdown measures were gradually relaxed and pent-up demand fuelled a rise in consumer spending. GDP grew by 8.7% on the month – faster than expected by City economists.

The latest snapshot confirmed growth returned in May and strengthened in June, although not by enough to offset a dramatic collapse in output in April during the first full month of restrictions on business and social life, which was deep enough to push the economy into negative growth across the quarter.

 

The UK’s historic contraction is dominating the headlines today:

The Financial Times focuses on the fact that the UK economy suffered a bigger slump than any other major European economies:

The UK’s historic contraction is dominating the headlines today.

The Financial Times focuses on the fact that the UK economy suffered a bigger slump than any other major European economies:

The figures confirm that the pandemic has hit the UK harder than other developed economies. After the second-quarter contraction, the decline in UK GDP since the end of 2019 is double that in the US and second only to Spain among European peers.

Analysts said the UK’s underperformance was partly due to the length of its lockdown, and partly because the consumer-facing services sector that was hardest hit by social distancing has a bigger weight in GDP, accounting for 80 per cent of the economy.

Bloomberg is concerned that the recession will be followed by a surge in unemployment:

That casts a light on the risks of winding down government support for companies and workers too soon. Almost 10 million jobs have been put on furlough programs under which the government pays the wages. Sunak, who has borrowed tens of billions of pounds to finance spending, insists the time has come to start phasing the plan out, although his critics say it should be extended.

“Sunak has got a tricky job,” said James Smith, developed markets economist at ING. “There’s no easy answer to the Job Retention Scheme and that’s the main risk at the moment as that is unwound. There’s a real chance that the recovery stalls if unemployment broadens out.”

In The Telegraph, Tim Wallace points out that the recession is already over (but not officially), but rising joblessness could undermine hopes of a V-shaped recovery:

The hospitality industry was only able to reopen from 4 July, so was closed for the entire second quarter from April to June.

This was down almost 90pc, so the sector is ripe for a major recovery.

Yet its plight also illustrates the difficulties of getting back up to February’s production levels rapidly - completing the V-shape.

As pubs, restaurants and hotels reopen, any trade marks a sharp increase from second-quarter levels.

Yet if they cannot get back to their full capacity, because of social distancing rules or customers’ caution or a lack of tourists, then the ‘V’ will fall short, potentially taking much longer to complete the recovery.

As unemployment rises in those industries which fail to rebound, the risks rise that households cut spending and a weakness in one sector spreads to another.

The Independent’s Ben Chapman says the scale of the recession shows that the government mishandled the lockdown:

The UK’s reliance on consumer services, which often require face-to-face contact, is one factor in the deeper than expected contraction.

Yet, that is not a sufficient explanation. Deep declines were experienced across the board, in services, construction and manufacturing.

Another answer to this important question is given weight by the GDP numbers: that the UK entered lockdown too late and when it did so the government was too timid in its measures to control the virus.

In so doing, it allowed Covid-19 to spread much more widely than it otherwise would have done, necessitating a longer shutdown.

The consensus among economists is that Britain’s economic slump – the deepest on record – was in part due to the length of time that the country’s businesses were forced to close.