Coronavirus: UK economy officially enters recession after record 20.4% contraction

Edmund Heaphy
·Finance and news reporter
·3-min read
Golden sunset over London on the 24 August 2017 from Greenwich Park. View of 30 St Mary's Axe aka The Gherkin in the City of London. (Photo by Claire Doherty)
A 'technical' recession comprises two consecutive quarters of contracting economic output. Photo: PA/Claire Doherty

The UK economy suffered its largest-ever contraction and officially entered a recession in the second quarter, as the coronavirus lockdown took a heavy toll on economic activity in the country.

Economic output declined by a record 20.4% between April and June, according to an initial estimate from the Office for National Statistics (ONS).

The quarter-on-quarter contraction in gross domestic product (GDP), which was only slightly better than the 21% that analysts had forecast, follows the 2.2% decline seen in the first three months of the year.

According to long-standing convention in the UK, the country’s economy enters a “technical” recession following two consecutive quarters of contracting output.

READ MORE: Broken records in jobs market point to huge coronavirus disruption

“It is clear that the UK is in the largest recession on record. Our latest estimates show that the UK economy is now 22.1% smaller than it was at the end of 2019, highlighting the extent of this recession,” the ONS said on Wednesday.

While the coronavirus pandemic has plunged countries across the world into recession, the collapse in economic activity in the UK is far sharper than that experienced by its counterparts in the G7.

In the second quarter, output fell by 13.8% in France, by 12.4% in Italy, and by just 9.5% in the US.

The vertiginous declines nonetheless dwarf those seen during any recession over the past two centuries — and reflect the scale of the economic damage caused by government-imposed lockdowns across the world.

The ONS said that there were record quarterly falls in services, production, and construction output, with declines “particularly prevalent” in the industries that have been most exposed to government restrictions, such as accommodation and food services.

Compared to other countries, the UK is unusually reliant on its services sector, which accounts for around 80% of all economic activity.

That dependence, and the country’s comparatively long lockdown period, go some way to explaining the extent of the slump.

Economic output declined by a record 20.4% between April and June. Chart: Office for National Statistics
Economic output declined by a record 20.4% between April and June. Chart: Office for National Statistics

The recession represents the first for the UK economy since 2009, when the downturn caused by the financial crisis ended.

“Today’s figures confirm that hard times are here,” chancellor Rishi Sunak said on Wednesday.

“Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will,” he said.

While economists expect this recession to be particularly deep, many also expect the recovery to be faster than previous downturns.

READ MORE: What is a V-shaped economic recovery?

In June alone, the UK economy expanded by 8.7%, higher than the 8% analysts had forecast and above the 2.4% growth seen in May, the ONS said on Wednesday.

In the two months since the record 20.4% plunge in April alone, the UK economy has grown by 11.3% overall. However, it still remains 17.2% smaller than it was in February, before the pandemic.

“The recession brought on by the coronavirus pandemic has led to the biggest fall in quarterly GDP on record,” said Jonathan Athow, a statistician at the ONS.

“The economy began to bounce back in June with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover. Despite this, GDP in June still remains a sixth below its level in February, before the virus struck,” he said.

The Bank of England said last week that UK economic output would likely return to its pre-pandemic levels by the end of 2021.

But the bank warned that the economy would first shrink by 9.5% in 2020, the worst contraction in a century.