Britain in record recession after economy shrinks by a fifth

Marco Green
August 13, 2020

The UK officially entered recession after its economy contracted more than any major European country during Covid-19 lockdown.

Sunak, whose official title is Chancellor of the Exchequer, plans to end in October the government's furlough scheme that is paying up to 80 percent of wages for almost 10 million workers.

According to Poshakwale, the UK GDP's nosedive was largely caused by the fact that the COVID-19 pandemic and subsequent lockdown severely hit the service sector comprising finance, retail, entertainment, trade, tourism, real estate, and hospitality, which contribute over 75% to the British economy.

"Overall, productivity saw its largest-ever fall in the second quarter".

In response to the damning GDP figures, Chancellor Rishi Sunak said: "While there are hard choices to be made ahead, we will get through this, and I can assure people that nobody will be left without hope or opportunity".

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"Government needs to step in and help those who are likely to lose their job retrain for new openings in different sectors", KPMG economist Yael Selfin said.

Pay fell by the most in more than 10 years in the April-June period, down 1.2%, reflecting how workers on the job retention scheme receive 80% of their pay.

The UK economy has been hit particularly hard because of its reliance on services and "social consumption", such as eating out and shopping.

The U.K.is now in a transition period whereby it remains part of the EU's tariff-free arrangements until the end of the year.

By the time Prime Minister Boris Johnson introduced the lockdown on March 23, the United Kingdom had "a bigger first wave" than could have otherwise been the case, meaning restrictions had to go on for longer. However the prospect of a swift return to "business as usual" - a so called "V-shaped" recovery is likely to remain remote, as the economic damage from coronavirus continues to evolve.

And it's nearly inevitable that unemployment will skyrocket, potentially more than doubling to the 3-million mark last seen in the 1980s.

As GDP had already declined by 2% in the first quarter, Germany's economy met the definition of a recession: two consecutive quarters of contracting GDP.

The country - which already has the highest death toll in Europe from the virus - appears to be paying a heavier price for locking down later than its continental neighbours earlier in the year. The government hoped the package would ease Germans' financial strain and boost consumer spending.

Productivity, as measured by output per hour, fell a record 2.5%.

Economists have suggested that Britain's downturn is more severe because Prime Minister Boris Johnson imposed lockdown at a later stage in the pandemic than other countries.

The Bank of England said the labor market was a key concern, while officials fear a jump in unemployment when government job support is withdrawn later this year.

The central bank warns that the longer the recovery takes, the greater the risk of economic "scarring".

Other reports by Click Lancashire

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