UK Economy Enters Recession, First Time Since The 2008 Global Financial Crisis

“UK gross domestic product (GDP) is estimated to have fallen by a record 20.4% in Quarter 2 (Apr to June) 2020, marking the second consecutive quarterly decline after it fell by 2.2% in Quarter 1 (Jan to Mar) 2020.” – Office for National Statistics (ONS) Report, UK.

Global Coronavirus Tracking Map: (Active Cases)

The COVID-19 pandemic crisis has not alone inflicted pain on the health of the people but also the global economies where one’s income, growth, and existence is directly linked their own growth. The deadliest virus which infected around 21083098 people across the world and causing a death toll of 763323 people, had already devastated a lot of families and communities. In the UK, the virus has infected around 315600 people and a death toll of 46791, not alone has plunged the UK economy into a deep recession. But also the previous political uncertainties of Brexit deal, whether to be in the European Union (EU) or not, has also contributed to the existing economic crisis, which leads the UK economy to enter into the deepest recession since the 2008 Global Financial Crisis (GFC).

On August 12, 2020, the Office for National Statistics (ONS) of United Kingdom (UK) government has released an official statistical report confirming the official GDP figures for the second quarter (Q2)/(April to June) of 2020 financial year (FY2020) as “record negative” in numbers. In that report, the ONS has recorded that the UK economy has technically entered into a deep recession with a contraction of 20.4% GDP in the Q2 of FY2020, for the first time in 11 years, since the 2008 GFC.

Fall Of UK Economy Real GDP By 20.4% In Q2 Of FY2020 (GDP Estimates From Q1 (Jan to Mar) 2005 To Q2 (Apr to June) 2020)

From the graph, it is evident that there is a fall of real GDP of the UK in the Q2 of FY2020 to 20.4%, compared to a fall of 2.2% in the Q1 (Jan to Mar) of FY2020. When compared with the Q4 of FY2019, the GDP of the UK has decreased by 22.1% in Q2 of FY2020, a record negative figure in the history of GDP quarterly calculations that began in 1955.

Tweet By the Office for National Statistics (ONS)

UK Economy Worst Among the G7 Nations

The UK’s quarterly (Q2) contraction is by far negative than any other G7 nation. In this regard, France has reported a contraction of 13.8%, Italy – 12.4%, Germany – 10.1%, Canada -12%, the US – 9.5%, and Japan – 7.6%.

Fall Of Output Across The Services, Production, And Construction Sectors

The report highlights that due to the COVID-19 shutdowns of business activities, “There have been record quarterly falls in services, production and construction output in Quarter 2, which have been particularly prevalent in those industries that have been most exposed to government restrictions.”

The Decline Of Output Across The Services, Production And Construction Sectors

Decline Of Services Output

The graph shows a fall of output in Q1 at 2.3% and followed by 19.9% in Q2 FY2020. The report highlights that the notable number of industries which contributed to this fall in the service sectors were, as follows:

• accommodation & food services
• wholesale & retail trade
• repair of motor vehicles
• human health & social work facilities and
• education

All these services were accounted for almost 52.4% of the total contraction in the services in Q2. The only exception came from the public administration & defense, which grew at 0.4% in the Q2.

Decline Of Production Output

In Q1 the output from the production services fell by 1.5% and in Q2 the output fell by 16.9%, marking a fifth consecutive quarterly decline as the post Brexit uncertainty exists in the UK. The Q2 decline was the result of the drop in the production in the month of April to 20.4%, which caused the fall in the manufacturing output. In production output, the manufacturing sub-sector output fell to a record level of 20.2% in Q2, compared to 1.1% in Q1.

Decline Of Construction Output

The construction services recorded a fall of output at 35.0% in Q2, compared to 1.7% in Q1. This record fall has reflected the declines in both the new work and the repair & maintenance. In this sector, the private new housing has declined by 51.2% as the social distance measures have affected the housing activities to contain the virus. Further, the ONS reports that, “In addition, construction new orders fell by a record 51.1% in Quarter 2 to £6.2bn; their lowest level since records began in Quarter 1 1964”.

Video Explaining The Entry Of The UK Into Recession

What The Fall In GDP Tells About Britain

Overall the decrease in the real GDP of Q2 of FY2020 is worrisome, as the UK Finance Minister (FM) Rishi Sunak warns that, “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will”.

UK Finance Ministry’s Video Warning ‘Hard times Are Here’ For The UK

With closures of companies, the rise of inflation, decline in private consumer spending, weak global and domestic demand, labor shortage and after all the prevalence of virus across the nation, it’s unlikely that the growth will pick up a speedy recovery in the upcoming quarters until there is a complete containment of the virus. With sectors on shutdowns, there may be a high unemployment rate in the coming months, as said by FM. But this will be the new normal in the UK economy until it bounces back itself to where it was in positive growth.

Featured images: Cover Magazine