The UK economy suffered a bigger slump than any other major European economy in the second quarter, shrinking by a fifth and falling into its deepest recession on record.
Official data released on Wednesday showed that gross domestic product fell more than 20 per cent quarter on quarter, with widespread contractions across all sectors.
The figures confirm that the pandemic has hit the UK harder than other developed economies. The decline in UK GDP since the end of 2019 is double that in the US and second only to Spain among European peers.
The UK compares especially badly with Germany, where GDP fell 11.9 per cent over the first half of the year, and with the US, which suffered a 10.6 per cent drop.
In both of those countries the economic recovery is well under way — though in the US it is now threatened by high levels of new virus cases and the stand-off between Democrats and Republicans over a new round of fiscal stimulus.
“Today’s figures confirm that hard times are here,” said Rishi Sunak, the UK chancellor, while promising to leave no one “without hope or opportunity”.
But the Labour opposition seized on the figures as evidence that the government’s handling of the crisis had contributed to “the worst recession in Europe”.
Analysts said the UK’s underperformance was largely because of the length of its lockdown, although also because the consumer-facing services sector that was hardest hit by social distancing has a bigger weight in GDP, accounting for 80 per cent of the economy.
A recovery from the depths of the lockdown gained momentum in June. Output grew 8.7 per cent month on month — faster than most economists had expected, although broadly in line with the Bank of England’s latest predictions.
This means UK GDP has grown 11.3 per cent since its April low, but remains 17.2 per cent beneath its level in February, before the crisis hit. The figures led to renewed calls from business groups for the government to extend wage support through its furlough scheme and step up other forms of support.
Tej Parikh, economist at the Institute of Directors lobby group, called for cuts in employers’ national insurance contributions to support hiring, and for the Treasury to explore options for restructuring business loans.
Alpesh Paleja, economist at the CBI employers group, said the dual threat of a second wave of infection and slow progress over Brexit talks underlined the need for “maximum agility” from government.
James Smith, research director at the Resolution Foundation, a think-tank, added: “Although today’s data tells us that the economy is recovering as lockdown restrictions ease, it still has a long way to go. And that challenge will be bigger for the UK than for most other rich countries.”
The services sector fell 19.9 per cent quarter on quarter, accounting for three-quarters of the fall in GDP. With much of the hospitality and leisure sectors still closed in June, its recovery has been slower than that of other sectors, with services output up 7.7 per cent month on month, largely thanks to a strong recovery in car sales. This compared with an 11 per cent rebound in manufacturing.
Construction was hardest hit over the quarter as a whole, but has also bounced back faster, with a month on month jump of 23.5 per cent in June.
The ONS set out record quarter-on-quarter falls in household spending, driven by the slump in expenditure on tourism, hospitality and transport, and in government spending. The latter was caused by school closures and the postponement of non-urgent healthcare.
It also highlighted the risk of a prolonged slump in business investment, which has fallen by a record 31.4 per cent since the first quarter. Bank of England surveys suggest that most businesses have cancelled or postponed non-essential spending, especially in consumer-facing sectors.
Dean Turner, economist at UBS Wealth Management, said that although the quarterly numbers were bleak, the upbeat June figures suggested a “strong bounce in activity as the economy emerged from lockdown”.
“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,” he said.
Additional reporting by Adam Samson
