The impact of the pandemic has hit the U.K. economy hardest of major G7 economies, after reporting GDP drops of 20.4%.
Figures released by the UK government show that the GDP dropped for the second quarter of 2020 by 20.4%, with the drop in activity between April and June representing the worst quarter since records measuring GDP began in 1955.
Key to the declining GDP figure is the loss of around 730,000 jobs since the beginning of the pandemic in the UK.
Comparing the results of Q2, 2020 to that of 2019, the UK’s economic output fell by 22.1%, worse than any other European country and reportedly double that of the United States’ 10.6% decline that the Office for National Statistics has published.
The UK’s finance minister, Rishi Sunak has released a statement on the numbers being published saying that “today’s figures confirm that hard times are here.”
“Hundreds of thousands of people have already lost their jobs, and sadly in the coming months, many more will. But while there are difficult choices to be made ahead, we will get through this, and I can assure people that nobody will be left without hope or opportunity.”
According to figures from the Office of National Statistics, Canada is expected to report GDP declines of around 12% for the quarter, with Japan expected to return a contraction of around 7.6%.
The Office of National Statistics has said that “the larger contraction primarily reflects how lockdown measures have been in place for a larger part of this period in the UK.”
Compared to its European counterparts, the UK fared worse than Germany’s 11.9% decline, Italy’s 17.1% drop and France’s 18.9% drop in GDP activity.
According to a report from CNN Business’ Mark Thompson, “Italy allowed restaurants, cafes and hairdressers to reopen in the middle of May, whereas the United Kingdom waited until July 4 to do the same. Germany allowed some shops, such as bookstores, bike shops and car dealerships to reopen as early as April 20, almost two months before non-essential retail outlets reopened in the United Kingdom.”
The ONS says that when the United Kingdom did move to reopen parts of the economy and loosen restrictions on certain businesses, this provided a 8.7% increase of GDP activity over the previous month.
“The UK economy is heavily reliant on services and household spending, both of which posted record declines in the second quarter, as consumers who were holed up at home spent less money and saved more. In addition, millions of workers were furloughed and mayn have now been laid off,” Thompson added.
A report from the Guardian’s Larry Elliot states that “Britain is primarily a service sector economy and a relatively large share of activity depends on face-to-face social interaction that is susceptible to physical distancing. Consumer spending in areas such as cinema, restaurants, hotels and live entertainment accounts for 13% of the economy in the UK, compared with 11% in the US and 10% in the eurozone, according to Goldman Sachs.”
His report quotes Kallum Pickering, senior economist at Berenberg, who says that “typically, recession data are subject to heavy revisions… nevertheless, taken at face value, the bigger-than-expected contraction suggests some downside risk to our call of a 9.5% contraction in full year 2020.”
The impact of the pandemic has amplified the economic uncertainty related to Brexit trade agreements, with reports stating that the UK government has failed to secure a number of key trade deals with its European partners.