U.K. GDP: Britain Suffers Worst Slump in Europe in Second Quarter

The U.K. economy suffered more than any major European nation during the coronavirus lockdowns, piling pressure on the government to ensure the withdrawal of its support programs doesn’t derail the nascent recovery. Gross domestic product plunged 20.4% in the second quarter, the most since records began in 1955 and roughly double that of Germany and the U.S. It also pushed Britain into its first recession since 2009. The report followed massive job losses since the start of the pandemic, and Chancellor of the Exchequer Rishi Sunak acknowledged that more pain is to come.

Worst in Europe

British GDP contracted 20.4% in the second quarter

Source: National statistic institutes

“I’ve said before that hard times were ahead, and today’s figures confirm that hard times are here,” he said following the release. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.” That casts a light on the risks of winding down government support for companies and workers too soon. Almost 10 million jobs have been put on furlough programs under which the government pays the wages. Sunak, who has borrowed tens of billions of pounds to finance spending, insists the time has come to start phasing the plan out, although his critics say it should be extended.

‘Tricky job’

“Sunak has got a tricky job,” said James Smith, developed markets economist at ING. “There’s no easy answer to the Job Retention Scheme and that’s the main risk at the moment as that is unwound. There’s a real chance that the recovery stalls if unemployment broadens out.”

A rebound is underway — U.K. output jumped a record 8.7% in June, beating forecasts — but high-frequency data such as credit card spending and electricity use are still well below pre-pandemic levels. They’ve more or less recovered in other major European economies, according to Bloomberg Economics. The U.K. economy has been hit particularly hard because of its reliance on services and “social consumption,” such as eating out and shopping. And there are worrying signs that the upturn could soon run out of steam.

Localized jumps in infections have heightened concerns over more shutdowns, government wage support is being phased out, and companies face higher tariffs should Britain fail to agree a trade deal with the European Union by the end of the year.

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