UK economy facing meltdown

Britain will on Wednesday officiallyenter recession, with figures set to show an economic collapse of around 20percent of GDP in the second quarter — the worst contraction in Europe, reports AFP.

The Office for National Statistics (ONS), which is due to unveil thelatest assessment at 0600 GMT, is uniformly expected to confirm theunprecedented contraction between April and June.

It will be Britain’s first recession since the 2008 financial crisis. The predicted drop in gross domestic product reflects the mammoth fall ineconomic activity nationwide during the quarter due to the lockdown imposedto tackle the pandemic.

Economists polled by Bloomberg have on average predicted a decline of 20.7percent in the second quarter, compared to the first three months of theyear.

The UK economy contracted by 2.2 percent in the first quarter and, with arecession defined as two successive quarters of decline, together with Wednesday’s results herald the country’s first in a decade.

Initial figures already released show economic activity plunged around 20 percent in April, before rebounding slightly in May thanks to the first easing of restrictions.

The grim economic news comes despite unprecedented governmentinterventions, including spending tens of billions of pounds on job support schemes in a bid to avoid mass layoffs.

Meanwhile the Bank of England (BoE) has launched massive asset buybacksand cut interest rates to historic lows that are almost zero.

If Britain’s GDP drops by more than 20 percent, it will have posted theworst performance in the second quarter in Europe, ahead of Spain (-18.5percent) and France (-13.8 percent).

The country — which already has the highest death toll in Europe from thevirus — appears to be paying a heavier price for locking down later than its continental neighbours earlier in the year.

The British economy also relies more heavily on the hard-hit servicessector than other European nations.

– ‘Won’t be pretty’ –

The recession is already wreaking havoc, with ONS data released Mondayshowing around 730,000 UK workers have been removed from the payrolls ofBritish companies since March.

Announcements of job cuts have become a daily occurrence, with firmsexpected to pick up the pace of layoffs as the government’s key employmentsupport scheme ends in October.

The unemployment rate is expected to soar in the months ahead, withmillions set to turn to government benefit programmes.

“Whatever the numbers are, and they won’t be pretty, the more importantquestion is how quickly the UK economy can bounce back,” said Michael Hewson,analyst at CMC Markets.

“We have seen some progress on that,” he added.

Finance Minister Rishi Sunak has appeared cautious about the pace of therecovery, telling Sky News last week “there is hardship ahead for many people” while noting there was “hope”.

Meanwhile members of the Bank of England have been divided over howquickly Britain will return to economic normalcy.

Recent indicators suggest a strong rebound in many industries, from retailsales — which saw a boost from businesses reopening in June — to other private sector activity such as construction.

In its forecast released last week, the BoE was less pessimistic about thefall in GDP for the whole of 2020, forecasting a drop of 9.5 percent.

But at the same time, it said it expects a slower recovery in 2021 andwarned that the economy would not return to its pre-pandemic level until 2022.