United Kingdom Is Facing ‘Significant Recession’ confirms Finance Minister Rishi Sunak

The Chancellor of the Exchequer Rishi Sunak told media that United Kingdom economy is in a middle of ‘significant recession’ as the country eyes the largest quarterly contraction in GDP figure since 2008, reflecting the impact of just few days of virus-induced lockdown in the month of March.

Office of National Statistics reported that the UK’s output for the first nine days after a lockdown in March this year fell by 5.8 percent and overall by 2 percent for the first three months of the year 2020. In the report, ONS also talked about the sectors which have been majorly impacted due to the countrywide lockdown, leading to sharp decline in their revenues. With the travel agency industry leading the group at a 50.1 percent month-on-month decline in business activities, airline industry followed the downturn recording a 44 percent drop during the period.

Overall, the services industry witnessed a greater deceleration in business during the period compared to the manufacturing sector. This is the first time in twelve years that the country has seen such a large drop in its GDP levels in a quarter. Back in 2008, when the financial crisis was at its peak, the country had witnessed a five-quarter consecutive drop in its GDP levels before recovering gradually. In the current instance, the drop in business activity levels in the last few days of the quarter had been so huge that it offset the growth recorded in the first two months of the quarter. Given the way the situation has developed, it is highly likely that the rate of decline in business activity would be far more worse in the coming quarters that includes the major part of the lockdown period.

Among the three core sectors- manufacturing, services and construction- the services sector has declined the most, 6 percent, during March, followed by construction sector which fell by 5.9 percent while the manufacturing sector had a drop of 4.2 percent, as per the report published by Office of National Statistics.

While in the construction sector the decline in activity levels had been consistent, the same had not been the case with the manufacturing and the service sectors. The disruption in manufacturing industry had been relatively less with the manufacturing of cars and engineering recording a deep fall while the production of food item and toiletries remaining steady to meet the higher demand also emerging from health and hygiene concerns. On the front of services sector, travel bans, border restrictions and nationwide lockdown caused several travel and hotel businesses to undergo a massive downturn. But on the other side, the technology support businesses, media houses, OTT market, digital entertainment and online publishing companies have been on the receiving end in the service industry.

To strengthen this mixed economy of the United Kingdom, the British Government has launched several measures that have been doing well to bring an early revival in the economy and see a strong bounce back once the dust settles on the pandemic crisis. Although, the demand levels in the country could not be entirely protected, sufficient measures seems to be in place so that the production and supply-side dynamics suffer as little damage as possible. The government had at the beginning of March announced a job support scheme whereby it had offered to pay 80 per cent salaries of staff of small and medium-sized businesses who retained their employees through the lockdown period when there was no business. The scheme since then has been extended till the end of September this year when the government expects that it will be able to open up the economy fully. The government also rolled out loan schemes whereby amounts up to £50,000 were extended to the business at lucid terms with no interest or repayment requirements for the first year. These measures though ensuring that the foundations of the industries in the country are not shaken by this pandemic, could not stop the country from going into recession as eyed by the Finance Minister and other regulatory bodies.

Government-backed OBR had already forecasted a decline of around 13 percent in UK’s annual GDP in 2020 before recovery to be expected next year depending upon the country’s success in containing the coronavirus disease. The pandemic has, moreover, hit the British economy the hardest in international trade with the import and export activities of the country almost dried up, with many of the countries having a significant amount of their revenues coming from overseas markets are now faced with a risk of survival.

The onus thus is on how soon and how successfully the lockdown in the country would be withdrawn. The government since the beginning of this week has been releasing its workplace conduct protocols so that workers could rejoin work while maintaining public health safety. The government has also come out with a three-phased plan on how it intends to open the economy in stages in order to ensure that there is no large spike in the number of infections in the country. These measures to reopen the economy, if get implemented without many hiccups, could significantly lead to an early recovery of the economy.

The statement coming from the Chancellor of the Exchequer on UK heading towards significant recession combined with the analysis pouring in from several other esteemed organisations suggests that the British economy would continue to contract for more than one quarter. The market eyes a large number of businesses to collapse in the pandemic driven headwinds, but the ones who would weather this storm would be key to the rapid bounce back of the nation’s economy. However, curbing the employment to fall below the drastic level in the country remains the biggest challenge for the government.

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