Lockdown delivers record blow to economy as UK heads towards recession

The Office for National Statistics (ONS) reported that the UK’s economy shrank by a record 20.4% in April – the first full month of lockdown – and that virtually all areas of activity were impacted as recession looms.

The contraction in the value of goods and services produced is three times greater than the decline seen during the Global Financial Crisis when from the peak in February 2008 to the lowest point of March 2009 GDP shrank by 6.9%.

The UK’s economy was already shrinking even before April ; analysts said this was likely to be the worst month, as the government began easing the lockdown in May.

ONS figures for the three months from February to April showed a decline of 10.4% compared with the previous three-month period.

The number of people claiming unemployment benefit rocketed by 856,500 to 2.1 million in April and with 8.9m workers currently having their wages paid by the government, there are fears that this figure will rise significantly as the furlough scheme is unwound.

Speaking on behalf of the ONS, statistician Jonathan Athow said: ‘[The fall was] more than three times larger than last month and almost 10 times larger than the steepest pre-Covid-19 fall.agency’s deputy national statistician for economic statistics. In April, the economy was around 25% smaller than in February.’

‘Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall.’

Mr Athow added that carmakers and housebuilders were particularly badly hit, but said April was  likely to be the low point: ‘Our own surveys and wider indicators have suggested a pick-up in economy activity, but I think it’s really too early to know how quickly economic activity will recover in the coming months.’

That the economy functioned at all was due to the extraordinary level of cash being pumped in by the government; the furlough scheme has cost £19.6bn so far, with a further £7.5bn paid out to the self-employed.

Almost two-thirds of the UK’s GDP is based on household consumption, and the slump would have been all the more dramatic without government intervention.

Chancellor Rishi Sunak said: ‘In line with many other economies around the world, coronavirus is having a severe impact on our economy.

‘The lifelines we’ve provided with our furlough scheme, grants, loans and tax cuts have protected thousands of businesses and millions of jobs – giving us the best chance of recovering quickly as the economy reopens.”

The chancellor said life would get ‘a little bit more back to normal’ once High Street shops could reopen; ‘non-essential’ shops are due to re-open on Monday 15^th June.

Responding to Mr Sunak, shadow chancellor Anneliese Dodds warned that the UK’s economy was shrinking faster than those of other countries, saying the UK needed ‘strong action to help us climb out of this as quickly as possible’.

Economists expect an even bigger slump in the April-to-June period; although it has not yet experienced the technical definition of recession which is a fall in GDP in two consecutive  quarters the UK, along with much of the rest of the world, is thought to be heading into the worst recession for decades.