News | Published August 12 2020

UK enters recession

The largest economic contraction on record between April and June this year has officially seen the UK enter recession, after the economy shrank 20.4 per cent compared with the first quarter of the year.

The Covid-19 lockdown forced shops to stop trading which saw consumer spending fall sharply, while factory and construction output decreased dramatically.

It is the first time the UK has entered recession since 2009, but the Office for National Statistics [ONS] has indicated that there was some recovery of ground in June as the government began to lift some of its lockdown measures.

The ONS deputy national statistician for economic statistics, Jonathan Athow, said: “Despite this, gross domestic product [GDP] in June still remains a sixth below its level in February, before the virus struck.”

The output collapse was put down to the lockdown forcing shops, hotels, restaurants, schools and repair shops to close, with the dominant services sector weathering the largest quarterly decline since records began.

The closing of factories and rerouting of production lines to manufacture medical equipment significantly hampered the automotive industry, with car production at its lowest since 1954.

Most of the decline came in April, the first full month of lockdown. Over May the economy began to grow again, expanding 8.7 per cent on a month-to-month basis in June as non-essential retailers were allowed to reopen.

Despite official figures indicating that the quarter saw 220,000 jobs lost and brought the largest quarterly full in employment since May to July 2009, chancellor Rishi Sunak remains defiant.

Sunak said: "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."

Meanwhile, prime minister Boris Johnson has said that although parts of the economy were showing “great resilience”, there remains “a long, long way to go” to achieve recovery.

Despite the economy making up ground in May and June, the Bank of England has predicted that it will not return to pre-pandemic levels until the end of 2021, while the Office for Budget Responsibility estimates that it may take until beyond then.

With the economy having fallen by a fifth compared to its size at the end of 2019, the UK decline is twice as severe as the economic downturns seen in Germany and the United States.

The Institute of Directors has called for the government to introduce more measures to help guide businesses through the pandemic, such as cutting employers’ national insurance contributions to make it easier for firms to offer jobs.

Elsewhere, Confederation of British Industry economist Alpesh Paleja warned that the threat of a second wave of Covid-19 cases and uncertainty over whether a post-Brexit trade deal will be agreed with the EU this year still loomed large over businesses, meaning a “sustained recovery” is not assured.

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Authored by

Alexander Bridge-Wilkinson
Junior Editor
August 12 2020

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