UK recession announced Wednesday, 12 August 2020
This morning the ONS confirmed expectations that the UK is officially in a recession. Its latest analysis of GDP has shown that the economy shrank by 20.4% in the three months to June – the largest quarterly drop on record and our first official recession since 2009.
The effects of lockdown on the country’s economy have clearly been significant and this will come as little surprise to most of us. We’ve had to wait until today to get official confirmation that we’re in a recession because technically there must be two consecutive quarters of economic decline.
Despite the gloomy headlines, though, it’s not all bad news and it’s certainly not forever. The biggest question is when, rather than if, the economy recovers. We go through the key stats and what they mean for businesses below.
The economy actually began to contract at the beginning of the year. January to March saw a drop of 2.2%. Following the shock of COVID-19 and the government’s lockdown measures that closed down large parts of the economy in the interest of public health, the second quarter of 2020 (April – June) fell by 20.4%.
While every country in the world has experienced a negative economic impact from the COVID-19 pandemic, the UK seems particularly badly hit. With the value of the economy falling by just over a fifth, we’re the second worst hit European country after Spain (with a 22.7% decline) and almost twice as badly affected as the US.
There are some clear positives to note here too. While we can’t and shouldn’t ignore the fact that a 20.4% drop in the economy is significant, the decline was concentrated primarily in April, when we saw the strictest lockdown measures. GDP actually rose by 8.7% in June as lockdown measures began to ease, but this is still 17.2% below February’s level.
GDP is the official benchmark to measure the state of the economy, and a fall like this is obviously substantial. However, we’re likely to see a further rise in output across July and August, so it’s actually possible that we’ll see the largest quarterly fall in output followed by the largest quarterly increase.
While many businesses across manufacturing, services and construction are reporting a boost in demand and output, with the latter increasing by 23.5% in the last month, there are still many business owners reporting no turnover at all. By the end of June, nearly 90% of businesses reported they were trading again, increasing 3% from the beginning of the month. Wholesale and retail trade have made up nearly half the growth seen in this period. The trend, clearly, is a positive one, which we hope to see continue.
According to yesterday’s employment statistics there were 220,000 job losses between April and June this year. The country hasn’t seen a drop like that since the depths of the financial crisis in 2009. This figure also doesn’t include the more than nine million furloughed workers whose salaries the government is currently supporting.
Chancellor Rishi Sunak’s economic measures have been designed to help the public get through the initial effects of lockdown on their livelihoods. The Prime Minister is confident that these schemes will help in the long term too, but warns that the road to recovery will be no walk in the park.
While the cuts in VAT and stamp duty holiday will incentivise spending, a rise in unemployment is almost inevitable as the furlough scheme winds down. Sunak ended his reaction to the latest figures by promising that nobody would be left “without hope or opportunity”.
With many businesses now seeing an uptick in demand, it’s an important time to make sure you’re well placed to continue trading and maximise output with a range of possible restrictions. The number of infections is growing again since the lowest recorded rate at the end of June as we start to mix more face-to-face, and with local lockdowns starting again across the country, it’s in your best interest to continue with COVID-proofed operations.
We’ve seen many successful pivots and robust reactions to the difficulties presented during lockdown. There’s a lot to be said for the resilience of UK SMEs and we’ve already penned some key pointers on recession-proofing your business to get you through the road ahead.
There have been recessions, depressions and pandemics before. The best businesses survive, and many hugely successful companies have been born during crises. Whatever the future holds, we’ll be here to help in any way we can.
For more updates and advice on the current climate, head to our COVID-19 Impact Support Page where we’ve collated articles and information for business owners.