Originally published 2020-08-14.
Rishi Sunak, then Chancellor of the Exchequer, speaking to the BBC about the figures. Image: BBC.
On 12 August 2020, the Office for National Statistics (ONS) confirmed that the UK economy had shrunk by 20.4% between April and June 2020 compared with the first three months of the year. Combined with a smaller fall in the first quarter, that meant the UK was officially in recession for the first time since the 2008 to 2009 financial crisis, and the quarterly drop was the largest since modern records began.
The fall was also the deepest among the G7 group of major economies for that quarter. The main reason was the length and severity of the spring 2020 lockdown, combined with the structure of the UK economy, which leans heavily on consumer spending and face-to-face services.
How deep the 2020 fall really was
A drop of about a fifth in a single quarter is hard to picture. For comparison, Greece, during its debt crisis of the 2010s, lost roughly a quarter of its economic output over about six years. The UK lost a similar share of activity in three months, although, unlike Greece, much of it came back quickly once restrictions eased.
Comparable figures for the same April to June quarter, reported at the time, were:
- United Kingdom: down 20.4%
- France: down 13.8%
- Italy: down 12.4%
- Canada: down 12.0%
- Germany: down 10.1%
- United States: down 9.5% (not annualised)
Spain, outside the G7, recorded a fall of a similar scale to the UK's. The ONS revised the UK figure slightly in later releases as more data arrived, but it remained around a fifth. For 2020 as a whole, UK output fell by roughly 10%, widely reported as the steepest annual drop in about 300 years.
There was one hopeful detail in the August release: the economy grew 8.7% in June alone as shops reopened, though it was still about 17% smaller than in February.
Why the UK was hit harder than its neighbours
Economists pointed to several reasons, and they still debate their relative weight:
- A long lockdown. The UK's first national lockdown began on 23 March 2020, later than in Italy, Spain or France. Many critics argued that the delay allowed infections to rise further, which in turn meant restrictions had to stay in place for longer.
- A service-heavy economy. Restaurants, hotels, retail, entertainment and personal services make up a larger share of UK output than in Germany, where manufacturing was able to restart faster.
- School closures and the health service. The ONS measures public services partly by activity, so fewer pupils in classrooms and postponed hospital treatments showed up directly as lower output, a method some other countries do not use in the same way.
That last point means some of the gap with other countries reflects how the economy is measured, not only what people actually lived through.
The human toll behind the numbers
The economic figures arrived alongside a grim health picture. By August 2020 the UK had recorded more than 40,000 deaths within 28 days of a positive test, and its excess death rate in the first wave was among the highest in Europe. Per head of population, its death toll at the time ranked among the worst in the world, although such international comparisons depend heavily on how each country counted Covid deaths.
The opposition seized on this. Shadow chancellor Anneliese Dodds argued that a downturn was unavoidable after lockdown, but that the scale of job losses was not, saying the country was on course for the worst recession too
after already having one of the worst excess death rates in Europe.
Rishi Sunak, then chancellor, told the BBC that the country was grappling with something that is unprecedented
, and stressed that hard times lay ahead, with many people likely to lose their jobs.
Jobs, benefit claims and the furlough scheme
The ONS labour market figures released in August 2020 showed the strain building beneath the surface. The Claimant Count, which tracks people claiming unemployment-related benefits, had reached about 2.7 million in July, more than double the March level. Around 730,000 fewer people were on company payrolls than before the pandemic, and redundancies were at their highest since 2013.
Yet the official unemployment rate was still only 3.9%. The main reason was the Coronavirus Job Retention Scheme, better known as furlough, under which the government paid most of the wages of millions of workers whose employers could not use them. At its peak in spring 2020, close to 9 million jobs were furloughed.
In August 2020 the scheme was due to wind down by the end of October, and economists feared a wave of layoffs once support ended. In practice, the government extended furlough several times as new lockdowns followed, and it finally closed at the end of September 2021. Unemployment rose, peaking at around 5% in late 2020, but far less than many forecasts had predicted.
What happened next
The "V-shaped" bounce that some hoped for in summer 2020 was interrupted by a second wave and a third national lockdown in early 2021. Still, the vaccine rollout allowed the economy to reopen through 2021, and UK output had recovered to roughly its pre-pandemic size by around early 2022.
The bigger legacy was financial. Furlough, business loans and other support measures added hundreds of billions of pounds to government borrowing, and the debate about how the pandemic was handled continues through the UK Covid-19 Inquiry, set up in June 2022.
Key points to remember
- The 20.4% fall in April to June 2020 was the UK's largest quarterly drop on record and the deepest in the G7 for that quarter.
- Lockdown length, a service-based economy and differences in how public services are measured all played a role.
- Furlough kept official unemployment far lower than the scale of the shock suggested.
- Quarterly GDP figures and death rates measure very different things, so comparisons between countries should always be checked for the same dates and definitions.
Sources: BBC News, August 2020; New Statesman: the UK suffers the worst recession of any G7 country; ONS: Labour market overview, August 2020; Wikipedia: COVID-19 pandemic in the United Kingdom.
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