Britain has slumped into recession after recording the largest drop in economic activity in a quarter on record.
UK GDP (gross domestic product) dropped 20.4% between April and June as government-imposed coronavirus lockdown measures kicked in fully.
That made two quarters in a row of decline, the technical definition of a recession, and the first time it has occurred since 2009.
It was the also worst decline of any of the major world economies seen yet though there were some signs of improvement towards the end of the period.
Recovery started in June, said the Office of National Statistics (ONS), when GDP rose by 8.7% compared to an 8% rally predicted by economists in a poll undertaken by Reuters.
“The recession brought on by the coronavirus pandemic has led to the biggest fall in quarterly GDP on record,” Jonathan Athow at the ONS said.
“The economy began to bounce back in June ... Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.”
Britain’s economy has just seen its worst-ever quarter since records, but there is hope among commentators that recovery might be just as dramatic.
It was in the time of the financial crash the UK was last officially in recession.
Then, in the wake of the failure of Northern Rock and rescue of Lloyds and Royal Bank of Scotland (now Natwest) by the taxpayer, GDP shrank by five quarters in a row before starting to recover from 2009.
To put that into context with the latest figures, the worst three months after the crash (the final quarter of 2008) saw a decline of 2.2%.
Now the UK economy has declined by 20.4% April – June, to follow a 25.9% fall in February to May and 2.2% in the first quarter of the year.
June, though, saw an 8.7% improvement and Berenberg points out that if GDP stays at this level throughout the current three months, it would already be up by 6.4% on a quarter by quarter basis.
The German broker is cautious even so and highlights that private consumption fell by 23.1% in the second quarter, investment by 25.5% and trade by 11% and these things do not recover quickly.
Even with the June pick-up, the indicators remain miles below the numbers at the start of the year.
Unemployment the worry
Russ Mould, at AJ Bell, added that the biggest impact on households from recession will be through job losses.
“Unemployment figures released yesterday showing that three-quarters of a million fewer people were working in July compared to March confirm that the crunch of the recession is already being felt by many.
“The Bank of England expects this figure to jump further as the Government’s furlough scheme is unwound and estimates around 2.5 million people will be unemployed by Christmas, meaning more pain is still to come. “
Mould added that a V-shaped recovery of the UK economy relies on no second coronavirus lockdown and also on UK trade talks being successful – “presenting two large uncertainties.”
The pound, the litmus test of any economic data, rallied against the dollar as traders focused on the improvement in June.
Neil Wilson, at Markets.com, added that it was no surprise Britain’s economy was in the mire over the past three months.
“But getting back to 2019 levels of activity is going to take a very long time as we see permanent impairment in certain sectors of the economy, as well as behavioural and social changes.”
-- adds comment, detail --