Its official: UK plunges into recession
At TruePublica we said a recession would happen right away because the economy was already teetering on the edge anyway, but with the COVID-19 crisis, things were going to get much, much worse. Now it is an official reality.
The U.K. economy shrank almost 6 per cent in March as the nation went into lockdown, plunging into what may be its deepest recession for hundreds of years. April will undoubtedly be much worse though because the official lockdown did not start until March 23rd. In other words – the dramatic 6 per cent plunge related to just one week of the entire month.
The slump meant gross domestic product fell 2 per cent in the first quarter, as restrictions to control the coronavirus heaped misery on an already tepid economy being dragged down by Brexit. The damage was done in March when the lockdown saw the dominant services industry shrink by 6.2 per cent. Manufacturing contracted 4.6 per cent and construction lost 5.9 per cent. Don’t forget that 92 per cent of the trading time in the first quarter was before the lockdown.
With all-but essential businesses shuttered, Britain is already in a deep recession. Remarkably, the Bank of England somehow expects a strong rebound to 15 per cent in 2021 after a 14 per cent slump this year but many analysts regard such a scenario as overly optimistic. At TruePublica, we’ve looked at the figures cooked up by the BoE and concluded that this is the work of fantasists. Their assumptions for a 15 per cent bounce-back included very little additional unemployment, strong consumer spending, wage growth and good business investment – all of which is not supported by any market data, or indeed common sense.
In a sign of the challenges facing the economy, Chancellor of the Exchequer Rishi Sunak on Tuesday extended wage subsidies for furloughed workers until the end of October at a cost of billions of pounds to the public purse. Meanwhile, the Bank of England may need to ease monetary policy further to prop up the economy, Deputy Governor Ben Broadbent said Tuesday.
The economy has now failed to grow for three of the previous four quarters, after months of political and Brexit uncertainty left the U.K. meant the U.K. entered the latest crisis on a weak footing.
Consumer spending, the engine of the economy, fell 1.7% in the first quarter, the largest drop since the financial crisis, while worse is now a certainty.
Separate reports Wednesday showed consumer spending has collapsed in recent weeks. The British Retail Consortium said its measure of sales fell 19.1% in April from a year earlier – the worst since records began in 1995 – while Barclaycard’s own gauge of transactions fell 36.5%. Second-quarter figures (Ap, May, June) will show the worst collapse of business activity ever recorded in British history.