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UK economy suffers biggest collapse on record due to virus crisis

by LLB Editor
12th Jun 20 1:02 pm

The UK economy suffered its biggest collapse since records began due to the ongoing coronavirus pandemic.

At its peak in April the lockdown reduced economic output by 25%, making the coronavirus crisis by far the deepest recession on record. The peak-to-trough fall in GDP was 7% in both the Global Financial Crisis and the Great Depression. Having plumbed those unprecedented depths, the economy is now on the return leg.

Britain’s economic recovery will be a far more drawn-out affair than the collapse, warns Capital Economics analyst Andrew Wishart. “Given the lockdown started to be eased in May, April will mark the trough in GDP.

“Overall, we are past the worst. But the recovery will be a drawn-out affair as restrictions are only lifted gradually and businesses and consumers continue to exercise caution. And while the trough in activity is now behind us, the fiscal cost of the collapse and the impact on the labour market, including the rise in the unemployment rate to over 8% that we expect, are only just starting to emerge.”

However, markets have shrugged off the staggering falls in UK GDP and eurozone industrial production in April.

Derrick Dunne, chief executive at Beaufort Investment, said: “Yesterday’s falls aside, the markets have been buoyant while we get more Q2 data for the real economy. The Fed has ruled out interest rate rises for the foreseeable future indicating it thinks things will be difficult for the medium term. This is good for stock markets.”

For instance, the GDP output of the UK economy fell by 20.4% in April. But at the time of writing, the FTSE 100 is up over 1% today. Although the GDP fall is unprecedented, it is no surprise given this is when the economy went into lockdown. The stock market is not reacting aversely to historic information.

Now, it is reacting more to how we come out of this. The government has provided a good deal of support thus far and will likely have to think carefully about how it deals with each sector in the coming months. The ongoing effect of CV19 will not be the same for each industry.

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