UK economy: Britain braced for GDP and jobs hit
The full extent of the Covid-19 crisis on the UK economy is set to be laid bare this week with the release of two key reports.
While economists have been at odds over the speed of the country’s recovery from the pandemic, this week’s figures from the Office for National Statistics (ONS) are likely to make for grim reading.
UK recession confirmed
It may have been in little doubt, but Britain’s economy will be officially declared in recession on Wednesday with the release of second-quarter gross domestic product (GDP) figures.
The data is expected to show that GDP plunged 21 per cent in the three months to the end of June, marking the second consecutive quarter of GDP decline and confirming a recession.
It is the first time the UK economy has been in recession since the financial crisis in 2008.
The figures will also show that Britain has suffered a larger economic hit from the pandemic than all other G7 countries.
Sanjay Raja, an analyst at Deutsche Bank, described the expected figures as an “historic collapse”.
He warned that there was a raft of further threats to the UK’s economic recovery, including local lockdowns and ongoing uncertainty surrounding Brexit talks.
However, it’s not all doom and gloom, as Bank of England governor Andrew Bailey last week said the economic impact of the pandemic may not be as severe as initially feared.
“A ‘V-shaped’ recovery of the UK economy seems unlikely, though governor Bailey was not as downbeat as many feared he might be,” said analyst David Buik.
Craig Erlam, senior market analyst at OANA Europe, added: “I don’t think there’ll be much dwelling on the data, especially with the Bank of England having significantly improved their growth forecast for this year on Thursday, albeit with a sharp annual contraction on the cards.”
Nevertheless, the figures will offer little comfort for small business owners across the country who are still struggling with the impact of the virus.
Angela Hall, owner of Peterborough-based online babygrow retailer Zippyup, said: “The worst is still to come. Many businesses need passing trade and for customers to be out and about shopping, but people have changed their habits to avoid busy places.
“The government has definitely helped support a lot of businesses during lockdown, but now many companies will have to reassess their situation and staff numbers in order to ride out the storm.”
Analysts will now be keeping an eye on whether further intervention is needed to help support the economy.
The Bank of England last week opted to keep interest rates on hold at their record low level of 0.1 per cent. Bailey said negative interest rates had been added to the “toolbox” of possible measures, but there were no plans to use them yet.
Unemployment: Fumbling in the fog
Further downbeat predictions are expected tomorrow when the ONS releases its first report into the UK’s unemployment rate.
Buik warned the figures were likely to make “unappetising reading”, with unemployment potentially reaching 3m with up to 60,000 more people claiming unemployment benefits.
Thousands of Brits have already lost their jobs as a result of the pandemic, with airlines and the hospitality sector among the worst affected.
A survey released today by the Chartered Institute of Personnel Development (CIPD) and staffing firm Adecco Group revealed that as many as one in three UK firms plan to cut jobs by October.
But the impact of Covid-19 on unemployment levels will not be fully felt until the government’s job retention scheme is wound up at the end of October.
Jim Wood-Smith, chief investment officer at Hawksmoor Investment Management, said that while unemployment has undoubtedly risen, it was impossible to know the full extent of the jobless rate until the furlough scheme is over.
A total of 9.6m people have used the scheme as of 2 August, though it is unclear how many are currently on furlough.
“What this means is that neither we, nor anyone else, has any idea how many are currently on furlough, nor what the true unemployment picture is in the UK,” Wood-Smith said. “Until the furlough scheme ends, we are fumbling in the fog.”
Last week the Bank of England said it expected unemployment to hit 7.5 per cent this year — an improvement on its previous forecasts.
However, the Bank warned that unemployment would stay higher for longer as much of the economy continued to struggle with the economic fallout.