UK economy faces long climb back to health

Pedestrians, some wearing a face mask or covering due to the COVID-19 pandemic, walk along a quite shopping street in London on August 12, 2020. Britain's economy contracted by a record 20.4 percent in the second quarter with the country in lockdown over the novel coronavirus pandemic, official data showed Wednesday. (AFP)
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Updated 13 August 2020

UK economy faces long climb back to health

  • Wave of job losses feared after data shows record 20 percent economic hit

LONDON: Britain’s economy shrank by a record 20.4 percent in the second quarter when the coronavirus lockdown was tightest, the most severe contraction reported by any major economy so far, with a wave of job losses set to hit later in 2020.

The scale of the economic hit may also revive questions about Prime Minister Boris Johnson’s handling of the pandemic, with Britain suffering the highest death toll in Europe. More than 50,000 UK deaths have been linked to the disease.

“Today’s figures confirm that hard times are here,” Finance Minister Rishi Sunak said. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.”

The data confirmed that the world’s sixth-biggest economy had entered a recession, with the low point coming in April when output was more than 25 percent below its pre-pandemic level.

Growth restarted in May and quickened in June, when the economy expanded by a monthly 8.7 percent — a record single-month increase and stronger than forecasts by economists in a Reuters poll.

However, some analysts said the bounceback was unlikely to be sustained.

Last week the Bank of England (BoE) forecast it would take until the final quarter of 2021 for the economy to regain its previous size, and warned unemployment was likely to rise sharply.

Any decision to pump more stimulus into the economy will hinge on the pace of growth in the coming months, and whether the worst-hit sectors such as face-to-face retail and business travel ever fully recover.

The second-quarter gross domestic product (GDP) slump exceeded the 12.1 percent drop in the euro zone and the 9.5 percent fall in the United States.

Some economists said the sharper decline partly reflected the timing of Britain’s lockdown — which fell more in the second quarter — and its dependence on domestic consumer spending.

Suren Thiru, an economist with the British Chambers of Commerce, said the recent pickup probably only reflected the release of pent-up demand rather than a sustained revival.

“The prospect of a swift ‘V-shaped’ recovery remains remote,” he said.

Britain’s unemployment rate is expected to jump when the government ends its huge job subsidy program in October.

Sunak said he saw “promising signs” in GDP data for June and reiterated his opposition to extending the program. In July he cut sales tax for the hospitality sector and in August is subsidising restaurants to draw in diners.

Hotels and restaurants did just one fifth of their normal business in June, when the lockdown was still largely in force.

British GDP shrank by 2.2 percent in the first quarter of the year, reflecting the lockdown that started on March 24.


Bailout will keep Air France-KLM afloat for less than year: CEO

Updated 41 min 51 sec ago

Bailout will keep Air France-KLM afloat for less than year: CEO

  • ‘If we base it upon the past few weeks, it is clear that the recovery in traffic will be slower than expected’
  • Governments are coming under pressure to tie airline bailouts to environmental commitments

PARIS: Bailouts provided to Air France-KLM by the French and Dutch governments will keep the airline flying less than a year, its CEO Benjamin Smith said Monday and evoked the possibility of injecting new capital.
In an interview with the French daily l’Opinion, Smith also warned that calls for airlines to contribute more to fight climate change could be catastrophic for their survival which is already under threat due to the coronavirus pandemic.
When countries imposed lockdowns earlier this year to stem the spread of the coronavirus airlines faced steep drops in revenue that have claimed several carriers.
A number of countries stepped in with support, including France which provided $8.2 billion to Air France and the Netherlands which received a $2.9 billion package.
“This support will permit us to hold on less than 12 months,” said Smith.
The reason is that air traffic is picking up very slowly as many northern hemisphere countries are now fearing a second wave of infections.
“If we base it upon the past few weeks, it is clear that the recovery in traffic will be slower than expected,” according to Smith, who said when the bailout was put together the airline was expecting a return to 2019 levels only in 2024.
Smith said discussions were already underway with shareholders on shoring up the airline group, and steps would be taken before the next regular annual meeting in the second quarter of next year.
“One, three or five billion euros? It is too early to put a figure on a possible recapitalization,” he said.
The airline group had $12.12 billion in cash or available under credit lines.
Major shareholders include the French government with a 14.3 percent stake, the Dutch government at 14 percent, as well as Delta and China Eastern airlines which each hold an 8 percent stake.
Governments are coming under pressure to tie airline bailouts to environmental commitments.
One proposal that has come from a citizen’s convention convoked by President Emmanuel Macron would cost airlines an estimated $3.6 billion.
Smith said the imposition of environmental charges on the industry would be “irresponsible and catastrophic” for Air France-KLM.