UK economy officially in recession after 20.4% slump

The slump follows a 2.2% quarter-on-quarter contraction in the first three months of the year

The British economy has fallen into recession after official figures Wednesday showed it contracting by a record 20.4% in the second quarter as a result of lockdown measures put in place to counter the coronavirus pandemic.

The slump recorded by the Office for National Statistics follows a 2.2% quarter-on-quarter contraction in the first three months of the year. It was toward the end of that period — on March 23 — that the U.K. joined other countries in Europe in locking down its economy.


As such, the U.K. economy is in recession — commonly defined as two quarters of contraction. Britain's recession is deeper than those recorded by comparable economies in Europe, notably Germany and France, or the United States.

Unlike others, Britain's statistics agency provides monthly growth figures and these offer some hope that the economy is healing as lockdown restrictions are eased. In June, the British economy grew by a monthly 8.7%.

“The economy began to bounce back in June with shops reopening, factories beginning to ramp up production and house-building continuing to recover," said statistician Jonathan Athow.

The British government hopes additional measures such as the reopening of pubs and restaurants will allow the economy to rebound further. But given the scale of the contraction, it's inevitable unemployment will sky-rocket in coming months.

“I’ve said before that hard times were ahead, and today’s figures confirm that hard times are here," said Treasury chief Rishi Sunak. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.”

So far, the British government has kept a lid on the numbers swelling the ranks of the jobless through a salary support package that has given hard-pressed firms the opportunity to retain workers rather than fire them.

Under the Coronavirus Job Retention Scheme, the government has been paying a large chunk of the salaries of workers retained. Some 1.2 million employers have taken advantage of the program to furlough 9.6 million people at a cost to the government of 33.8 billion pounds ($44 billion).

Sunak is ending the program in October on the grounds it gives “false hope” to furloughed workers while at the same time limiting their prospects of getting new jobs as their skills fade. He insisted “nobody will be left without hope or opportunity.”

With unemployment set to soar - some forecasts see it doubling to above the 3 million mark last seen in the 1980s - many are urging the government to extend the furlough program to those sectors that are set to face restrictions for many more months.

“The best way to get our economy back on its feet is to keep people in work," said Frances O’Grady, general secretary at the umbrella Trades Union Congress.

The British economy faces further headwinds over the coming months aside from the pandemic. There's uncertainty related to its future trading relationship with the European Union following the U.K.'s departure from the bloc in January.

The U.K. is currently in a transition period whereby it remains part of the bloc's tariff-free arrangements until the end of the year. The future economic relationship has yet to be agreed, meaning tariffs could be imposed on traded goods between the two sides come the start of next year.


“The dual threats of a second wave (of contagions) and slow progress over Brexit negotiations are also particularly concerning, underlining the need for maximum agility from government on both these issues, allowing a greater focus on the economy’s long-term future," said Alpesh Paleja, lead economist at the Confederation of British Industry.