Britain enters recession but hopes rise for a swift bounceback
Hopes of a swift UK bounceback from the Covid crisis improved today as economic output beat forecasts in June.
The UK officially entered its first recession since 2009 — and the deepest ever — with a 20.4% second-quarter contraction, following a 2.2% fall in first-quarter GDP. The fall was the worst of any major economy in Europe amid the Covid-19 crisis.
But the Office for National Statistics figures showed the economy expanded 8.7% in June — better than City forecasts for an 8% improvement. The pound staged a partial rebound from heavy tumbles against the dollar overnight, while Government bonds fell.
The data showed construction output improved 23.5% month on month in June — still down 24.8% on last year — with services improving 7.7% and manufacturing up 11%. However, business investment slumped as companies protected cashflow.
Nomura chief UK economist George Buckley said although Britain’s economy had suffered worse than its European peers, the bouncebacks in industrial production figures across the Continent indicated that those country’s that suffered the sharpest falls recovered the quickest.
He added: “The biggest question will be what happens in the labour market and how that feeds through to wages and spending.”
Dean Turner an economist at UBS Global Wealth Management said: “We expect pent-up consumer demand to drive a strong recovery in the third quarter, although this momentum will gradually fade as the outlook for the labour market deteriorates. The UK economy is unlikely to return to its pre-crisis level before the end of next year.”
The picture echoes the view of the Bank of England which last week said the economic shock of the Covid crisis wasn’t as bad as first feared, but the UK would take longer to recover.
CBI lead economist Alpesh Paleja said: “The dual threats of a second wave and slow progress over Brexit negotiations are also particularly concerning, underlining the need for maximum agility from Government on both these issues, allowing a greater focus on the economy’s long-term future.”
The British Chambers of Commerce said prospects for a swift bounceback were still “remote” and called for a cut in employer National Insurance contributions and support to help businesses placed under local lockdowns.
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