The Office of National Statistics (ONS) announced that gross domestic income fell in the second quarter of this year by 20.4%. This was after a decline of 2.2% in the first quarter which means that the UK entered a recession for the period between January and June (a recession being defined as two consecutive quarters of economic decline).
This big drop in economic decline was driven by the closure of businesses during lockdown as shops, restaurants and hotels were all prevented from operating. The Chancellor has said that this economic slump will inevitably lead to more jobs being lost, with official figures already showing that from April to June, the number of people in work decreased by 220,000.
The ONS has said that the UK has entered the deepest decline compared to all of the biggest economies, with the USA, France, Germany and Italy all posting smaller contractions. The pandemic has erased 17 years of economic growth and taken the level of GDP back to the level it was in June 2003.
It was inevitable that the coronavirus pandemic would have a serious impact on the economy. The International Monetary Fund (IMF) expects all countries to experience declines with a reduction of 10.2% predicted for the UK for the year 2020. Experts estimate that the world economy as a whole will contract by 4.9%.
What does this mean for me?
For most people, economic growth is a good thing. When the economy is growing, jobs are being created, people are buying goods and people are confident about the future. The government receives more money in taxes, which means taxes can be cut or more money spent on public services.
When the economy starts to shrink, people get less confident about the future. People start spending less, businesses put a hold on hiring people and governments look for ways to save money, whether through tax hikes or public service cuts. Ecommerce websites, although benefiting in the short term, will inevitably suffer a loss in demand for products, so it is worth thinking of alternative ways of drumming up traffic.
Recessions affect the population in different ways. The most hardest hit tend to be graduates, school leavers and older workers. These sections of the population will find it harder finding a job, keeping their job and getting a promotion.
In the last recession the majority of homeowners who were able to keep their jobs actually benefited as mortgage interest payments dropped considerably.
When will it end?
Taken on a monthly basis, the economy grew by 8.7% in June and the Bank of England predicts that the economy will grow in the third quarter which will signify the recession as technically over. However it is unemployment that will have the biggest impact on the economy, and what will happen in November with the ending of the furlough scheme is the biggest question.
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