Britain’s economy shrank by a record 20.4% in April as the first full month of the coronavirus lockdown set the country on course for the worst recession in more than three centuries.
The official figures for gross domestic product (GDP) from the Office for National Statistics showed no area of the economy was left unscathed after the government imposed tight controls on business and social life to limit the spread of the disease.
Boris Johnson said he was in no doubt that the British economy would suffer a very serious economic impact as a consequence of Covid-19, but that Britain could “bounce back” from the crisis.
“We’re going to work slowly to get the economy back on its feet,” he told broadcasters on Friday, saying that the government would outline plans in the coming weeks to boost jobs and growth. “Slowly confidence will return and you will see a bounce back for the UK.”
The collapse of growth in the economy in April, compared with the previous month, was the biggest since monthly records began in 1997, and was more than triple the previous record fall of 5.8% in March – when the lockdown was first announced.
The fall was almost 10 times greater than the pre-Covid record monthly decline of 2.2% in June 2002, when an extra bank holiday for the Queen’s Golden Jubilee caused a sharp temporary loss in output that was quickly reversed. It was also steeper than the 1% decline in September 2008 at the peak of the financial crisis – an economic collapse that played out over a much longer timespan.
One of the two main definitions of recession in the UK is at least two quarters of negative economic growth. Judged by this yardstick, the UK was last in recession in 2008-09, when there were six consecutive quarters of negative growth.
Some economists believe this definition of recession is flawed, since an economy would not be in recession if it contracted by 5% in the first quarter, expanded by 0.1% in each of the following two quarters and then contracted again by 5% in the fourth quarter. It would, however, be deemed to be in recession if it grew by 5% in each of the first and fourth quarters but contracted by 0.1% in each of the second and third quarters.
An alternative – and tougher definition – is a full calendar year of negative output. Given the UK economy has grown on average by 2.5% over many decades, it is rare for gross domestic product (GDP) to fall on an annual basis. There have been only five such years since the end of the second world war: 1974, 1975, 1980, 1981 and 1991.
The United States has its own method of assessing recession, with the National Bureau of Economic Research's business cycle-dating committee making a judgment.
The NBER defines recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales".
Given the rapid onset of the coronavirus pandemic, the Bank of England has estimated GDP could contract by 25% in the second quarter and unemployment more than double, triggering what it expects to be the deepest recession for more than 300 years. GDP fell by 2% in the first quarter, with April’s figure setting off the second quarter on a steep downward trajectory. The technical definition of a recession is two consecutive quarters of falling GDP.
Andrew Bailey, the Bank of England governor, said he stood ready to take further action to support jobs and growth if necessary, although added that there were “signs of the economy now beginning to come back to life”.
Speaking to broadcasters, he said: “So we stand ready to take action. We’ve already taken very big action, and that’s still going on I should say. And we have to be ready for that because we are still very much in the midst of this.”
The ONS said the monthly decline in April broke records across the board with all the main drivers of economic growth plunging into reverse, as people were told to stay at home to save lives, businesses were forced to close and millions of workers placed on furlough. A total of 8.9 million temporarily laid-off employees now have 80% of their wages paid for by the state under the furlough scheme.
The country’s dominant services sector, which accounts for about 80% of the economy, shrank by almost a fifth, fuelled by the closure of non-essential shops on the high street and evaporating car sales.
Air transport shrank by 92.8%, in the biggest fall of any sector, as flights were grounded across Britain and other countries. After the closure of hotels, pubs, bars and restaurants, the accommodation and food services sector shrank by 88% on the month.
Faced with disruption to international supply chains and the need to protect workers, shutdowns in production at many factories and reduced hours at others led manufacturing output to fall by a quarter.
The ONS said a 20.3% decline in production – which includes factory output as well as energy and mining – was more than double the collapse recorded during the miners’ strikes and Winter of Discontent of the 1970s, in the biggest slump since records began in 1968.
With cranes and diggers across the country falling idle as the virus spread, construction output plunged by 40%.
Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: “April’s fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost 10 times larger than the steepest pre-Covid-19 fall.”
Although some lockdown measures are now being eased, the snapshot from the ONS showed Britain’s economy at the onset of the deepest recession in living memory.
Over the wider three-month period to the end of April, GDP fell by 10.4%, as government restrictions on movement dramatically reduced economic activity. This was the sharpest decline on records dating back to 1955, in a collapse surpassing the industrial strife of the 1970s, recessions of the 80s and 90s, and the 2008 financial crisis.
Alongside the domestic hit to activity, the ONS said the UK’s trade with the rest of the world was also badly affected by the pandemic. There were large falls in the import and export of cars, fuels, works of art and clothing.
The coronavirus lockdown has virtually halted international travel and tourism, hitting airlines and other travel companies, aerospace and auto manufacturers and oil companies hard.
As these businesses adjust to dramatically reduced revenue projections, job losses are starting to mount alarmingly. More than 40,000 redundancies have already been announced across these sectors, with more than 10,000 likely to be in the UK.
Rolls-Royce
The jet-engine manufacturer has confirmed that 3,000 job cuts, of a planned 9,000 worldwide, will be made in the UK. Rolls-Royce will make the first round of redundancies through a voluntary programme, with about 1,500 posts being lost at its headquarters in Derby, as well as 700 redundancies in Inchinnan, near Glasgow, another 200 at its Barnoldswick site in Lancashire and 175 in Solihull, Warwickshire.
Bentley
The luxury carmaker intends to shrink its workforce by almost a quarter, slashing 1,000 roles through a voluntary redundancy scheme. The majority of Bentley’s 4,200 workers are based in Crewe, Cheshire.
Aston Martin Lagonda
The Warwickshire-based luxury car manufacturer has also announced 500 redundancies.
BP
The oil company plans to make 10,000 people redundant worldwide, including an estimated 2,000 in the UK, by the end of the year. The BP chief executive, Bernard Looney, said the majority of people affected would be those in office-based jobs, including at the most senior levels. BP said it would reduce the number of group leaders by a third, and protect the “frontline” of the company, in its operations.
British Airways
The UK flag carrier is holding consultations to make up to 12,000 of its staff redundant, a reduction of one in four jobs at the airline. BA intends to cut roles among its cabin crew, pilots and ground staff, while significantly reducing its operations at Gatwick airport.
Virgin Atlantic
Richard Branson’s airline is to cut more than 3,000 jobs, more than a third of its workforce, and will shut its operations at Gatwick.
EasyJet
The airline has announced plans to cut 4,500 employees, or 30% of its workforce.
Ryanair
The Irish airline intends to slash 3,000 roles and reduce staff pay by up to a fifth.
P&O Ferries
The shipping firm intends to cut more than a quarter of its workforce, a loss of 1,100 jobs. The company, which operates passenger ferries between Dover and Calais, and across the Irish Sea, as well as Hull to Rotterdam and Zeebrugge, will initially offer employees voluntary redundancy.
Centrica
The owner of British Gas is to slash 5,000 jobs, saying it was looking to cut costs by simplifying its business structure. The company is removing three layers of management, with more than half of the job losses falling on leadership roles, including half its 40-strong senior team.
Johnson Matthey
A major supplier of material for catalytic converters in cars, Johnson Matthey announced plans to make 2,500 redundancies worldwide, or 17% of its total workforce. The group said it was the result of the pandemic and the uncertain outlook for the car industry.
Heathrow Airport
Voluntary redundancy has been offered to all of its 7,000 direct employees after coronavirus wiped out its passenger traffic.
Rishi Sunak, the chancellor, said the government had protected millions of jobs through its emergency financial support schemes.
Saying that the hit to GDP was in line with downturns in other countries amid the global health emergency, he added: “We’ve set out our plan to gradually and safely reopen the economy. Next week, more shops on the high street will be able to open again as we start to get our lives a little bit more back to normal.”
This week the OECD said the UK economy would shrink by more than any other developed country as businesses struggled to recover from the pandemic. It predicted GDP would contract by 11.5% in 2020 or 14% if the virus returned and forced the government into a second lockdown.
Economists said April should mark the nadir of the downturn as lockdown measures are gradually rolled back. They warned, however, that a fresh rise in Covid-19 infections after the reopening of businesses could lead to the reimposition of tough controls and further economic damage.
Suren Thiru, head of economics at the British Chambers of Commerce, said any prospect of a rapid “V-shaped” recovery remained unlikely, with many sectors continuing to operate at reduced capacity.
“Some firms, including those in our hospitality, leisure and tourism industries, may remain closed for some time and will require flexible and open-ended government support to weather the economic storm,” he said.
