The collapse in Britain’s economic output in the second quarter of 2020 is a number for the history books. The economy shrank by a fifth due to lockdown measures aimed at containing the coronavirus pandemic. The fall easily outpaced the previous post-1955 record of a 2.7 per cent drop in 1974 when commercial use of electricity was limited to three days a week in the aftermath of the oil crisis. In the three months to June this year, Britain had the steepest drop in output of any European country.
Partly that reflects timing issues. The UK went into official lockdown on March 23, a week or more later than most western European counterparts, and began its phased reopening only in June, several weeks later than they did. That led to a steeper overall drop in output, which was more concentrated in the second quarter. Britain’s service-based economy meant a bigger chunk of output was vulnerable to people staying at home; industrial production has bounced back more quickly than the wider economy.
Locking down when the pandemic was more advanced increased both lives lost and the economic damage. The economies of countries such as South Korea, Germany or Denmark, which managed relatively quickly to get a grip on the virus, have fared far better than those that did not. In the first half-year as a whole, only Spain fared worse than Britain.
Ultimately these quarterly growth figures are less important for long-term prosperity than what comes next. Shutting down the economy inevitably leads to a collapse in output. Britons’ material wellbeing will depend more on the strength and speed of the recovery than on the precise size of the drop during the second quarter. Here the figures are more encouraging; markets reacted positively to the data because it showed a strong rebound in growth during June — the economy grew by 8.7 per cent in the month alone as restrictions were eased and more recent data such as restaurant bookings are also encouraging.
This suggests the furlough scheme has managed to preserve a lot of viable employment relationships as well as protecting the incomes of those who could not work. Chancellor Rishi Sunak is weighing options to shelve his autumn Budget if Britain is hit by a big second wave of coronavirus. He should proceed with it regardless. While the data and the future path of the virus are uncertain, the government can provide vital reassurance to businesses that they can rely on its support.
Either way, many of the country’s most important industries will not emerge from the crisis for some time. Foreign students will stay away from Britain; much of the arts, especially live theatre, remain closed. Workers have not returned, en masse, to offices, with dire consequences for businesses such as cafés and commuter rail. Coronavirus will reshape the economy and the accompanying joblessness cannot be resisted indefinitely.
Sectors such as aerospace and car manufacturing did not collapse as sharply as some others; output of transport equipment was down 38.2 per cent, compared to 86.7 per cent for food and accommodation services. But a global slowdown and deep consumer uncertainty suggest production is unlikely to recover quickly. With or without an EU trade deal, the end of the UK’s post-Brexit transition period will be another drag on the recovery.
Coronavirus has opened a new chapter in Britain’s economic history, but it is by no means over. While the figures for the second quarter are dramatic, the months to come will determine how the story eventually plays out.