Recession: UK faces long road to recovery after unprecedented downturn, economists warn

Recession: UK faces long road to recovery after unprecedented downturn, economists warn

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The UK economy faces a long road back to pre-coronavirus levels after an unprecedented 20.4 per cent fall in output during the lockdown between April and June, economists have warned.

Despite signs of a bounce back in June as shops re-opened, workers returned to construction sites and factories, and the housing market began to pick up, experts said the path ahead remains “precarious”, with the risk of a sharp rise in unemployment looming this winter.

By September, gross domestic product is on a trajectory to be 10 per cent below its February level, according to a forecast from the National Institute for Economic and Social Research (Niesr).

“Despite the recovery noted in June, the path ahead remains precarious,” said Dr Kemar Whyte, senior economist at Niesr. “An extended period of growth will be required to make up the ground lost in recent months.”

While forecasts for GDP diverge markedly due to the myriad uncertainties of the current situation, there is consensus around one point: That the virus must be properly contained if the economy is to get back on its feet.

“Although activity continues to be supported by substantial fiscal and monetary policy actions, the recovery that is needed will take time as public health concerns weigh on activity,” said Dr Whyte.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, blamed the government’s slow response to Covid-19 for the severity of the economic hit.

He said: “The long duration of the lockdown in the second quarter, due to the government’s slow response to Covid-19 in March, followed by its failure to prevent the virus from spreading from hospitals, was at the root of the economy’s under-performance in the second quarter.”

He warned the rebound will “peter out in the autumn” with further lockdowns likely.

It has been suggested that as schools re-open, pubs and restaurants may have to close down again to contain a likely flare-up in the number of cases.

Mr Tombs agreed that “renewed curtailment of economic activity in the services sector” was likely and that therefore GDP will remain 5 per cent below its pre-Covid peak by the end of the year.

While there were some encouraging signs of growth in the official figures, given the severity of April’s downturn, few analysts now hold out much hope of a swift economic bounce-back this year.

Paul Dales of Capital Economics described the recovery as “underwhelming” so far.

“The combination of a large share of the UK’s GDP being generated by the sectors that are hampered the most by social distancing and the drag from the uncertainty caused by Brexit means the UK economy will probably continue to lag behind its peers in the race to recover from the coronavirus crisis.”

He forecast that there will be additional local lockdowns but no national one, with a stuttering economic recovery leading to GDP reaching pre-Covid levels by the end of 2022.

Suren Thiru, head of economics at the British Chambers of Commerce, said: “The prospect of a swift ‘V-shaped’ recovery remains remote as the recent gains in output may fade over the coming months as the economic damage caused by the pandemic increasingly weighs on activity, particularly as the government support measures wind down.

“Against this backdrop, bold action is needed to immediately inject confidence back into the UK economy.”

A protracted fall in output stretching into next year risks causing longer-term “scarring”, said Tej Parikh, chief economist at the Institute of Directors.

Scarring includes things like the loss of skills that occurs when businesses close down and people are made redundant.

Mr Parikh added: “The chancellor must respond now with measures to support jobs by cutting the cost of employment, for instance by reducing employers’ National Insurance contributions.”

Some industries renewed their calls for specific help on Wednesday. Aerospace trade body ADS, which is reportedly seeking a £1bn government bailout, said the GDP fall highlighted the scale of the challenge now facing the country.

ADS chief executive Paul Everitt said: “While the wider economy has begun the process of recovery, industries including aerospace and aviation will take longer than many other parts of the economy to reach the levels of output seen before the crisis began.

“Additional support will be needed in the months ahead to safeguard our world-leading industrial capabilities and protect high value jobs that are vital to UK prosperity from being lost.”

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