LONDON – The British economy did not contract as much as originally thought during the second quarter of the year when coronavirus lockdown measures were at their most intense — though the slump remained the worst on record.
The Office for National Statistics said Wednesday that the British economy contracted by 19.8% in the April to June quarter from the previous three-month period, slightly less than its previous estimate of 20.4%.
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However, it said the British economy contracted by more than previously thought during the first quarter, when the virus started to affect business activity before the full restrictions on businesses were introduced on March 23. It now estimates that the economy shrank by 2.5% in the first quarter, against 2.2% previously.
“It is clear that the U.K. is in the largest recession on record," the statistics agency said. “The latest estimates show that the U.K. economy is now 21.8% smaller than it was at the end of 2019, highlighting the unprecedented size of this contraction.”
That contraction is greater than those recorded by the other Group of Seven major advanced economies and more or less double the contractions seen in the United States and Germany, though statistical methods can vary between countries.
Since May, when lockdown measures started to be eased, the British economy has managed to eke out three months of growth, which has helped it recoup around half of the output lost.
Andy Haldane, the Bank of England's chief economist, said the economy has recovered more strongly than expected and estimates that it will only be around 3-4% smaller than it's pre-COVID level by the end of the third quarter, largely thanks to consumer spending.
“In other words, the economy has already recovered just under 90% of its earlier losses,” he said in a speech.
“Against a backdrop of more than 40,000 Covid-related deaths, an extra 1 million people unemployed and perhaps a quarter of the workforce having faced a cut in their incomes, the speed and scale of this recovery in consumption is, I think, fairly remarkable,” he added.
With the virus spreading in the community once again and some lockdown measures re-imposed, there are worries that the recovery may start to stall this winter.
Further risks come from the lack of progress in post-Brexit trade discussions with the European Union. Though the U.K. left the bloc on Jan. 31, it is benefiting from tariff-free trade until the end of this year. The discussions are about agreeing on the outlines of the trading relationship from the start of 2021.
“We expect the U.K. to avoid a national lockdown and exit the single market in an orderly or at least semi-orderly fashion that involves the U.K. and the EU agreeing to some modest stopgap measures to prevent serious short-term disruption or with a full or partial deal,” said Kallum Pickering, senior economist at Berenberg Bank.