The U.K. economy shrank a record 20.4% in April as businesses and workers reeled under the lockdown designed to control the coronavirus pandemic.
The contraction, which followed a 5.8% drop in March, effectively wiped out almost 18 years of growth in two months, returning the economy to the same size it was in 2002. While a rebound is likely as businesses start to reopen, the grim figures show the scale of the challenge facing policy makers as they try to recover the lost ground.
The hit to the economy also comes at a delicate time for Prime Minister Boris Johnson, who faced mounting criticism this week by politicians and scientific advisers who publicly blamed his Conservative administration for making a series of grave mistakes since the beginning of outbreak.
“April was the first month to be fully encompassed by the lockdown. But these figures are nevertheless shocking, and it goes without saying that this kind of fall in activity is virtually unprecedented, either in scale or speed,” James Smith, an economist at ING, wrote in a report.
Social distancing rules and the prospect of a no-deal Brexit “all pose challenges to the U.K. economic recovery,” and will keep the pressure on theBank of England to ramp up its bond-buying program when it meets next week, he said.
In addition to registering the highest death toll in Europe, the U.K. has also paid an heavy economic price. The OECD says the country could see one of the developed world’s deepest recessions in 2020, with output slumping more than 11% — the most for more than 300 years.
Unemployment is widely expected to reach rates not seen since the mid-1990s, with more than 7,500 job cuts being announced on Thursday alone as the lockdown hammers businesses from chemical manufacturers to airports. That’s despite massive government support that has left the taxpayer paying the wages of over 11 million people at a cost of 27 billion pounds ($34 billion) so far.
The pound was largely unperturbed by the plunge in output, which was expected by investors. It was down 0.2% at $1.2575 as of 7:27 a.m. London time on Friday.
In April, the damage was done by a 19% drop in the dominant services industry, where sectors such as air transport, travel agents and restaurants lost around 90% of their output. Manufacturing fell 24.3%, while construction plunged 40.1%. It means the economy was around 25% smaller in April than it was in February.
What Bloomberg Economists’ Say
“The U.K.’s death toll is one of the highest in the world and that could mean spending remains subdued, even as the lockdown is eased further. Thought of another way, it could be that demand acts as the ceiling on activity as the economy starts to recover, not supply.”
— Dan Hanson, senior U.K. economist. Read fullREACT.
“Unemployment, rising debt and business insolvencies will weigh on the recovery,” Ian Stewart, chief economist at Deloitte, said. “The economy is unlikely to return to pre-Covid levels of activity until 2022.”
Separate figures showed the trade deficit excluding volatile non-monetary gold and precious metals narrowed in April, with both exports and imports falling sharply as the pandemic disrupted shipment of cars, fuels, works of art and clothing.
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