UK in 'largest recession on record' as covid-19 slashes GDP by 22%
The UK is in its 'largest recession on record,' the Office for National Statistics (ONS) has said, after GDP figures released today showed a record 20.4% contraction in 2Q.
The data follow a more modest decline of 2.2% in 1Q, leaving the UK economy more than a fifth - 22.1% - smaller than it was at the end of 2019.
The ONS said the fall in GDP reflected "the ongoing public health restrictions and forms of voluntary social distancing that have been put in place in response to the covid-19 pandemic."
While the overall picture is shocking, the Bank of England has left itself room to act from a monetary perspective."
The decline in 2Q was driven, the government department explained, by a 20% fall in output in April, which was the biggest monthly drop on record and reflected widespread declines in output across the services, production and construction industries.
The phased re-opening of many businesses, including non-essential shops and restaurants, through May to June allowed a partial economic bounce, with June's GDP reading seeing an increase of 8.7%.
Portfolio manager at Quilter Investors Hinesh Patel said the figures made it "clear further stimulus is going to be required. With the UK economy relying heavily on the services sector and consumer consumption, the Government must "get people consuming as much as they can."
Patel added: "While the overall picture is shocking, the Bank of England has left itself room to act from a monetary perspective. This shifts eyes onto Rishi Sunak to see if his innovations can be successful. The Eat Out to Help Out scheme appears to have gotten off to a good start, and it is this more targeted stimuli that other industries will be craving."
"The UK public loves a deal, so this scheme may provide a template for future targeted stimulus. The house builders in particular will be watching it closely, particularly given the proposed relaxation in planning laws."
'Not over yet'
Laura Suter, personal finance analyst at investment platform AJ Bell, commented: "News that the UK has officially fallen into recession doesn't come as a surprise, but the scale of the retraction in the economy means it's the largest UK recession ever. The UK economy shrank by 20.4% in the second quarter as the country fell into lockdown and businesses shut their doors."
"The figure for June is key, as we all knew that lockdown measures would have a big impact on the economy but what we still don't know is how quickly the UK will rebound. Figures showing GDP growth of 8.7% in June are encouraging - albeit this is coming from a very low base after the falls in May and still sits far below the pre-covid figures from February. But July figures are expected to be more positive still, as more businesses re-opened and people emerged from their houses to start spending."
And Richard Pearson, director at investment platform, EQi, added: "While the news comes as no surprise, it is shocking to see how far the economy has fallen since the pandemic started."
"And it's probably not over yet. The easing up of lockdown continues to be slow in some sectors, such as hospitality, and the threat of local flare-ups of covid-19 mean even those business that are open may have to shut again temporarily."
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