By Jason Douglas
LONDON -- The U.K. recorded a steeper second-quarter contraction
than its peers, suffering the worst economic hit from the
coronavirus in Europe as well as reporting the highest death toll
The U.K.'s economy is already recovering as restrictions on
daily life ease and workers trickle back to factories and offices,
but Bank of England officials warn that it could take until the end
of 2021 to regain the ground lost during the pandemic.
The country's gross domestic product shrank 20.4% in the second
quarter, equivalent to an annualized rate of 59.8%, its statistics
agency said Wednesday. In the same period, U.S. and German output
declined by around 10%, while Italy lost 12%, France 14% and Spain
"It's been a rough few months," said Richard Swart, global sales
and quality director at Berger Global, a Northern England-based
unit of Germany's Ringmetall AG that manufactures rings used to
seal container drums. Sales in May and June fell between 20% and
40% depending on the industry being supplied, he said. Sales have
since improved but remain sporadic, a sign of continuing
uncertainty among customers, Mr. Swart added.
"Everybody clings to the hope that there will be a vaccine,
that's the ultimate fix," he said.
The outsize hit reflects the timing and duration of the U.K.'s
nationwide lockdown. Britain locked down in late March, weeks after
comparable European countries, and only gradually began easing
restrictions late May. That meant the economy was shut throughout
most of the second quarter, whereas Germany and other neighbors had
already begun to reopen.
Another factor is the makeup of its economy. Compared with
peers, a larger share of the U.K. economy is devoted to activities
that require close personal contact, which have been especially hit
by measures to halt the spread of Covid-19. The Bank of England
calculates that spending on such activities, including going to the
cinema or theater, eating out or attending live sporting events,
represents around 13% of total output in Britain, compared with
around 11% in the U.S. and 10% in the euro area.
Data on Wednesday showed household spending shrank 23.1% in the
second quarter compared with the first, while business investment
fell by almost a third. Manufacturing and services output both fell
by one-fifth as factories idled and businesses closed.
Steve Clift, director of Café Azzurro Events Ltd., said the
pandemic has all but vaporized the revenue he would have expected
to bring in this year. The Solihull, England-based firm supplies
coffee and hospitality services across Europe to conferences and
events, all of which were canceled.
Business "literally fell off a cliff," he said. He is hoping
bookings tentatively scheduled for the year-end will help him claw
back some of the first-half losses.
Economic activity picked up in June as lockdown measures eased,
official figures showed. The economy recorded growth of 8.7% on the
month, led by expansions in hospitality and construction.
Separate data Wednesday showed industrial output in the
19-nation eurozone rose strongly for the second straight month in
June. Production at factories, utilities and mines was 9.1% higher
than in May, though output remained 11% less than in February,
before lockdowns became widespread.
Amid the downturn, the U.K. has, in common with other European
countries, spent big to try to keep workers on payrolls. Around
730,000 jobs have been lost since March, according to data Tuesday,
but some 9.6 million employees who might have lost their jobs were
instead on a government-backed furlough program.
That program is due to end in October. Treasury chief Rishi
Sunak warned Britons Wednesday to brace for further job losses this
The U.K. has recorded 46,000 confirmed Covid-19 related deaths,
the highest tally in Europe and the fourth highest in the world
after the U.S., Brazil and Mexico. That is equivalent to almost 700
deaths per million residents, more than Germany, France, Spain,
Italy or, on that per capita basis, the U.S.
Public-health experts say the high toll reflects factors
including an aging and diverse population, as older people and some
ethnic groups are more vulnerable to severe illness. Britain also
has higher rates of obesity, diabetes and other illnesses tied to
an increased risk of death than its European neighbors.
Some also pinpoint errors in policy, such as waiting too long to
lockdown the economy and slowness in rolling out an effective test,
trace and isolate program to hunt down new cases and stop the virus
"We responded really late, and in a chaotic manner," said Linda
Bauld, professor of public health at the University of Edinburgh.
The U.K. government has repeatedly defended its response, saying it
acted swiftly and in line with evolving scientific advice.
Prime Minister Boris Johnson's Conservative Party continues to
hold a comfortable lead over the rival Labour Party in the polls.
There are two main reasons for this: Firstly, voters think that Mr.
Johnson's party can better manage the economy. Secondly, voters are
proving forgiving over the government's handling of the
"They are willing to give them the benefit of the doubt given
the circumstances," said Chris Curtis from pollster YouGov.
Still, the economy has now supplanted health care as the number
1 issue for voters in the U.K., according to YouGov, meaning Mr.
Johnson's political fortunes will depend on how quickly the economy
recovers and how well the labor market holds up when
employment-support programs end in the fall.
Another wrinkle: The central bank's prediction for a protracted
recovery assumes that free-trade talks with the European Union, due
to wrap up this fall, conclude with a deal that smooths the final
step of the U.K.'s departure from the bloc. Britain officially left
the bloc in January but remains a de facto member state until the
end of the year. Failure to reach a deal risks disrupting trade
with its biggest trading partner, potentially setting back any
--Paul Hannon and Max Colchester contributed to this
Write to Jason Douglas at firstname.lastname@example.org
(END) Dow Jones Newswires
August 12, 2020 11:07 ET (15:07 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.