Is the UK recession as bad as it sounds?
The National Statistics Authority this week confirmed that the UK is now officially in recession as the GDP fell by 20.4% in the second quarter of 2020 – considered to be the biggest fall on record according to the ONS.
The drastic drop marks the second quarter in a row in retraction, which is widely considered to be the sign of a recession, largely due to the economic downturn caused by the coronavirus pandemic, which necessitated the widespread closure of businesses to stem the spread of the illness.
Rishi Sunak, the UK's chancellor of the exchequer, previously told the nation in a public address: "I've said before that hard times were ahead, and today's figures confirm that hard times are here. 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."
The downturn started when the GDP swiftly contracted in early March, when mandatory lockdown was enforced, although the brunt of the impact was not registered in Q1 figures due to timing. UK GDP still fell by 2.2% in Q1 of 2020, with Q2 predicted at the time to be the biggest drop.
‘confidence will return’
Yet, whilst the news presents a stark warning to the UK economy, some such as Luke Davis, CEO of SME investment firm IW Capital, believe that it’s not as bad as some fear. He said: “These figures are not wholly surprising given the catastrophic impact that lockdown had on many businesses.
“The word recession in the context of previous years is normally a by-word for low confidence, but in this case, that is not necessarily true. Many firms are optimistic about their prospects and want to grow. Resilience is an important part of any business and firms that have survived this period will now be looking forward to growth and opportunity.”
Rachel Winter, Associate Investment Director at Killik & Co, agrees, stating: “Although our two consecutive quarters of falling output puts us officially into recession territory, our monthly data is more encouraging. The month of June showed a pick-up in our output numbers, reflecting the easing of lockdown restrictions and the re-opening of many services businesses. Restrictions have since been further relaxed and economists will be hoping for more positive data in the third quarter.”
Prime Minister Boris Johnson also touted a steady recovery in late June, telling ITV News: "One of the things the UK has got right is the way we've tried to handle the situation with the furlough scheme and many other schemes we've put in place. What I want to do now is work slowly to get the economy back on its feet... I think slowly confidence will return and you will see a bounce back."
Source: Executive Grapevine