UK Enters Recession, Deepest GDP Contraction in History

Ibeth Rivero

The United Kingdom is now in "hard times".

UK's Office for National Statistics reported that the economy contracted by 20.4 percent during the second quarter of this year, which makes the country one of the most affected of the developed world, and confirming that the country has entered into a recession for the first time in 11 years.

According to the data, Services output shrank 19.9 percent, followed by production output which went down by 16.9 percent while the construction output dropped by 35 percent.

The ONS claimed that this means that the United Kingdom's economy fell by 22.1 percent in the first semester, highlighting that this doubles the United States figure, which went down by 10.6 percent during the same period.

England"The larger contraction of the UK economy primarily reflects how lockdown measures have been in place for a larger part of this period in the UK compared with these other economies," explained the ONS on its report.

In June 2020 the Gross Domestic Product went up by 8.7 percent, after increasing 2.4 percent in May. However, this growth was simply not enough to counter the effects of the lockdown on the country's economic performance earlier this year. June's trade balance stood at a 5.3 billion pounds surplus, after being at 4.3 billion on the previous month.

The jobless rate stood at 3.9 percent in June, remaining unchanged from the previous month's figure. According to the ONS, this means that the number of unemployed people that gave up looking for a job.

“Figures from our main survey show there has been a rise in people without a job and not looking for one," commented the ONS, adding that the most affected are the younger and oldest workers, as well as people who work on lower-skilled jobs.

In light of the release of these figures, the British Finance, Minister Rishi Sunak commented that the United Kingdom is now in "hard times". His expectations for the future are also grim, as he foresees that there will be many more job losses in the coming months, however, he highlighted that the UK will get through this crisis and that "nobody will be left without hope or opportunity."

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Sunak also explained that he believes that the UK economy has been hit so hard because it was highly dependent on its leisure sector compared to other developed countries. This is why shutting down those industries for almost three months had a significant impact on the UK's economic performance.

At the moment there are 312,789 infected individuals in the United Kingdom, as well as a death toll 46,628, making the United Kingdom one of the most affected countries in Europe, only below Russia and Spain which have 902,701 and 373,692 confirmed infections respectively.

In order to face the advance of the sanitary crisis, the UK government decided to impose a lockdown on March 23, which now is being eased in stages. The government has allocated so far 166 billion pounds, which is around 7.4 percent of the country's GDP, as a stimulus effort. Last week the Bank of England decided to leave the cash rates unchanged at 0.1 percent, highlighting that the monetary policy will depend on the evolution of the pandemic and that it doesn't plan to tighten its stance until there is evidence of significant progress in the UK labor markets and in terms of reaching the bank's inflation target, which stands at 2 percent.

By 7:46 GMT the Pound Sterling went down by 0.05 percent against the US dollar, hitting the 1.3042 level. On the other hand, it went up by 0.24 percent against the Japanese Yen, hitting the 139.28 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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