UK enters first recession in 11 years

By Stuart Stone

- Last updated on GMT

Official recession: the economy shrank by 20.4% versus the first three months of the year during April, May and June as a result of Covid-19 lockdown measures
Official recession: the economy shrank by 20.4% versus the first three months of the year during April, May and June as a result of Covid-19 lockdown measures

Related tags Finance Pubco + head office Legislation Tenanted + leased Freehouse

The UK economy has slipped into its first technical recession since 2009 after suffering its biggest slump on record as a knock-on effect of Covid-19 lockdown measures.

The economy shrank by 20.4% versus the first three months of the year during April, May and June as a result of factors including a drop-off in household spending in shops and hospitality venues - which were ordered to close - and factory shutdowns yielding the slowest car production since 1954.

This follows a 2.2% drop in GDP between January and March of this year.

Though the Office for National Statistics (ONS) said the economy had recovered slightly in June as Government restrictions on movement began to loosen, the overall slump marks the UK’s first technical recession - defined as two back-to-back quarters of economic decline - since 2009.

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

“The economy began to bounce back in June, with shops reopening, factories beginning to ramp up production and house-building continuing to recover.

“Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.

“Overall, productivity saw its largest-ever fall in the second quarter. Hospitality was worst hit, with productivity in that industry falling by three-quarters in recent months.”

Lasting hangover 

Since the announcement of the UK’s first official recession in more than a decade, economists have attempted to forecast what the coming months, and possibly years, could look like. 

Alpesh Paleja, an economist at the Confederation of British Industry, said that many companies were struggling to pay their bills on time and that a sustained recovery is “by no means assured”. 

“The dual threats of a second wave and slow progress over Brexit negotiations are also particularly concerning," he said.

What’s more, chief economist Tej Parikh of the Institute of Directors added that mounting debts made it difficult for businesses to push ahead with spending plans.

"Job losses have been mounting and may only increase as we reach the end of the furlough scheme,” he explained. “The pile of debt businesses have had to take on could also cause a lasting hangover.”

Yet, Ranko Berich, head of market analysis at commercial foreign exchange specialist Monex Europe told The Guardian​ he believes that the economy will recover faster the last recession as it reopens, and that comparisons to 2009 are not helpful.

“Comparisons to previous recessions are not particularly illuminating,” he said.

“Firstly, the 20.4% contraction in Q2 was caused by active shuttering of the economy which has since been reversed - hence we are likely to see a faster recovery of much of that activity than in, say, 2009. The 8.7% monthly jump in June supports this.

“Secondly, the Government’s furlough scheme has greatly delayed the labour market shock you’d associate with a recession of this magnitude, in the hopes of lessening long-term impacts to consumer behaviour due to job losses.”

Chancellor Rishi Sunak has however warned that the UK faces “difficult choices” after tumbling into such deep recession.

“I’ve said before that hard times were ahead, and today’s figures confirm that hard times are here,” he said. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.

“But while there are difficult choices to be made ahead, we will get through this, and I can assure people that nobody will be left without hope or opportunity.”

Pub impact 

As reported by The Morning Advertiser​, Prime Minister Boris Johnson called last orders in pubs on Friday 20 March, shuttering hospitality businesses for a total of 105 days, 15 weeks or 28.69% of 2020​ before pubs were allowed to reopen on 4 July at the earliest.

During that time, one-off cash grants for hospitality venues with a rateable value less than £51,000 cost the Government £882m according to real estate advisor Altus Group as the Government attempted to support businesses.

However, the latest CGA Business Confidence Survey revealed that just 36% of hospitality business​ leaders are predicting life after lockdown for all of their venues.

Looking back at the knock-on effects the UK’s last recession, regional brewers claimed that applications for tenanted pubs rose sharply​ in the first six months of 2009 — with increased redundancies across multiple sectors caused by the financial crash cited as a reason.

Charles Wells Pub Company, for example, said the number of new applicants jumped 51% year-on-year for the period from 1 January to 31 May.

However, pub companies such as Marston’s and Enterprise Inns saw profits slump by 6% and 8% in the early throes of the recession while pub closures accelerated to 39 per week​. 

Related topics Legislation

Related news

Show more