Looming recession poses second global embarrassment for UK | Business

Looming recession poses second global embarrassment for UK | Business


Worse than Italy. Worse than Spain. Britain has already had more deaths from Covid-19 than any other European country. Now it faces the possibility of a second embarrassment: the deepest recession of any nation in the developed world.

There’s not much in it, according to the latest forecasts from the Organisation for Economic Cooperation and Development. Italy and Spain are also propping up the league table put together by the Paris-based thinktank. A lot can happen between now and the end of 2020, a year that has not yet reached its mid-point.

Even so, the OECD’s findings make grim reading. It thinks the economy will contract by 11.5% in the event of a single hit and by 14% if the virus returns later in the year. The 37-member thinktank says one is no more likely than the other.

So why is the UK set to do much worse than Germany, which expects output to contract by 6.6% in the event of a single hit?

One factor identified by the OECD is the importance of the service sector to the UK economy. Trade, tourism, real estate and hospitality together make up a sizeable chunk of gross domestic products and all have been hard hit by the lockdown.

Having delayed imposing restrictions, the UK needed a near-blanket ban on activity from late March to early May to control the spread of the pandemic. Business and consumer confidence has been dented, unemployment is rising despite the government’s furlough scheme and there is uncertainty about how quickly restrictions will be lifted.

The OECD predicts recovery will take time and that by the end of 2021 output will still be 5% below pre-crisis levels. The continued need for working parents to look after school-age children is one important reason for the lack of a rapid bounce back.

Samuel Tombs, a UK analyst at the consultancy Pantheon, has estimated that school closures wiped 8% off GDP in April and May, and 7% after the partial reopening in June. It is easy to see why ministers are so keen to see schools fully operational.


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