The UK officially entered recession today, recording a 20.4% fall in GDP for the second quarter, as the coronavirus crisis bit. However economists took heart from the 8.7% growth recorded in June. Here, we round up the reaction from UK economists as they assess Britain’s prospects.
Joan Hoey, director for Europe at The Economist Intelligence Unit: “The expected lagged deterioration in the labour market and uncertainty over the path of the virus mean that the recovery will be uneven and protracted. We forecast a strong rebound (of 16.9%) in the third quarter and quarterly growth of 6.6% in the fourth quarter. However, the full-year contraction in GDP is set to be the deepest since 1921. We forecast a full-year contraction of 9.4% and do not expect output to return to pre-pandemic levels until 2023.”
Alpesh Paleja, CBI lead economist: “Encouragingly, the economy grew in May and June, indicating that the early stages of a recovery are underway. Yet cashflow constraints are still biting hard for businesses, and with the pandemic not going away anytime soon, 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, underlining the need for maximum agility from Government on both these issues, allowing a greater focus on the economy's long-term future.”
Melissa Davies, chief economist at Redburn: “There is a long road ahead for the UK economy to claw back its pandemic losses, all the while facing deflationary headwinds from large amounts of spare capacity and job losses. As the furlough scheme rolls off, more stimulus will be needed to support household incomes, not least if infection numbers rise in the Autumn. Any attempt to switch to fiscal tightening mode would be a grave mistake. We still need an Autumn Budget, but a stimulative one.”
Dean Turner, economist at UBS Global Wealth Management: “The UK is officially in recession, and the slump in the first six months of the year is worse than most of its peers. However, the monthly data already shows that the worst is behind us for the economy. GDP numbers for June show a strong bounce in activity as the economy emerged from lockdown.
“We expect pent-up consumer demand to drive a strong recovery in the third quarter, although this momentum will gradually fade as the outlook for the labour market deteriorates. The UK economy is unlikely to return to its pre-crisis level before the end of next year.”
James Smith, developed markets economist at ING: “Rising unemployment is probably the biggest threat to the recovery at the moment, and this is being linked to the gradual unwinding of the government’s furlough scheme over the next few months. Many firms, particularly in the hardest-hit hospitality/recreation sectors are still struggling as a result of ongoing consumer caution and social distancing constraints.
“Investment is also likely to remain a major drag, particularly in light of the forthcoming changes at the end of the post-Brexit transition period. Even if there is a trade deal agreed this year, businesses will encounter a wave of new costs across a range of sectors.
“We'd note that the sectors likely to be most heavily affected (eg manufacturing) by these changes are not necessarily going to be the same as those hardest hit so far by the Covid-19 crisis (which has most severely hit consumer services). For 2020 as a whole, we expect the UK economy to have shrunk by 9.7%.”