Economists have responded to the stats that show GDP contracted by 20.4% in the second quarter, as the country was sunk into its deepest recession on record and the worst recession of any G7 country.
The Office of National Statistics (ONS) said the economy bounced back in June as restrictions started to ease with a growth of 8.7%, after a growth of 1.8% in May. But GDP remains a sixth below its February level.
The services sector suffered the biggest quarterly decline on record, falling by 19.% in Q2, compared to a fall of 2.3% in Q1. Specifically, accommodation and food services output fell by 86.7% in Q2, reflecting the lockdown measures put in place to prevent the spread of Covid-19.
British Chamber of Commerce head of economics, Suren Thiru, said: “The UK suffered an historic contraction in economic activity in the second quarter as the coronavirus closed large parts of the economy.
“With restrictions steadily easing, the second quarter is likely to prove to be the low point for the UK economy. However, the prospect of a swift ‘V-shaped’ recovery remains remote as the recent gains in output may fade over the coming months, as the economic damage caused by the pandemic increasingly weighs on activity, particularly as the government support measures wind down.
“Against this backdrop, bold action is needed to immediately inject confidence back into the UK economy. This should include supporting businesses to retain staff through a cut in employer national insurance contributions and targeted support to help businesses placed under local lockdowns.”
Alpesh Paleja, Confederation of British Industry lead economist, stressed the need for maximum agility from the government: “This confirms the economic pummelling from the essential public health measures put in place to contain Covid-19. With people’s movement restricted over the second quarter, it’s unsurprising that sectors like hospitality, arts and entertainment felt the full brunt of lockdown.
"Encouragingly, the economy grew in May and June, indicating that the early stages of a recovery are underway. Yet cashflow constraints are still biting hard for businesses, and with the pandemic not going away anytime soon, a sustained recovery is by no means assured.
“The dual threats of a second wave and slow progress over Brexit negotiations are also particularly concerning, underlining the need for maximum agility from government on both these issues.”
Championing the importance of the protection of SMEs, Douglas Grant, director of Conister Finance & Leasing Limited, said: "We are facing a significant downturn that could last well into late 2021 and the economy will be hurt by both SMEs closing and mass redundancies for a significant part of the workforce.
"SMEs are not just the lifeblood of the economy, it is where innovation and creativity happens. It is imperative that SMEs have a tripartite level of sustainable support from government, alternative and traditional lenders working together to identify and protect the more resilient sectors such as infrastructure, technology and renewables.”
Markus Kuger, chief economist at commercial data and analytics provider, Dun & Bradstreet, said: “We are forecasting a contraction of 9.8% in real GDP for 2020 and the Dun & Bradstreet country risk rating for the UK remains the lowest on record with a deteriorating outlook due to increased credit risk.
“Our data indicates that the number of payments made on time has fallen from an average of 47.2% in March to 42.6% in June, 2020. We expect this to deteriorate further in Q3 as many sectors continue to face cash flow challenges in the wake of lockdown.”
Against the backdrop of the recent GDP figures, new data from Experian has shown that almost one in three (31%) of its customers used the enforced lockdown as an opportunity to pay off a portion of their debts and strengthen their credit report.
Excluding mortgages, Experian customers have on average cut their outstanding credit balance from £11,615 in March to £9,681 in June. According to Experian, these findings suggest that a significant proportion of its customers used the reductions in their spending to help stabilise their finances and debt.