By Jason Douglas
LONDON -- The U.K. recorded a steeper second-quarter contraction
than any other rich country, a performance that means it suffered
the worst economic hit from coronavirus in Europe as well as
reporting the highest death toll.
The economy is already recovering as restrictions on daily life
ease and workers trickle back to factories and offices, recent data
show, but Bank of England officials have warned that it could take
until the end of 2021 to regain the ground lost during the
pandemic.
The U.K. economy shrank 20.4% in the second quarter, equivalent
to an annualized rate of 59.8%, the country's statistics agency
said Wednesday. Over the same period, the U.S. and Germany lost
around 10% of their output, with Italy losing 12%, France 14% and
Spain 19%.
"It's been a rough few months," said Richard Swart, global sales
and quality director at Berger Global, a Durham, 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, he said.
"Everybody clings to the hope that there will be a vaccine,
that's the ultimate fix," Mr. Swart said.
The outsize hit reflects the timing and duration of the U.K.'s
nationwide lockdown. Britain locked down 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 its
peers, a larger share of the U.K. economy is devoted to activities
that require close personal contact, which has been especially hit
by measures to halt the spread of Covid-19, the disease caused by
the virus. The Bank of England calculates that spending on such
activities, such as 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 US and 10% in
the euro area.
Data 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 a fifth as factories idled and businesses closed.
Activity picked up in June as lockdown measures eased. The
economy recorded growth of 8.7% on the month, figures show, led by
expansions in hospitality and construction.
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.
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
spreading.
"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 pandemic response,
saying it acted swiftly and in line with evolving scientific
advice.
Mr. Johnson's Conservative Party continues to hold a comfortable
lead over the rival Labour Party in the polls. The 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 pandemic. "They are willing to give
them the benefit of the doubt given the circumstances," says Chris
Curtis from pollster YouGov.
Still, the economy has now supplanted health care as the number
one 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 whether the labor market holds up when
employment-support programs end in the fall.
Another wrinkle: The BOE'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 EU departure. 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 post-pandemic
recovery.
--Paul Hannon and Max Colchester contributed to this
article.
Write to Jason Douglas at jason.douglas@wsj.com
(END) Dow Jones Newswires
August 12, 2020 02:58 ET (06:58 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.