The UK economy is now officially in recession, following a record breaking 20.4% slump in Q2 But, before this is all cast as Covid 19 related, it’s important to look back a little bit further.
The downward trend in GDP is part of a pattern
There was also a 2.2% contraction in the first 3 months of 2020. And no growth at all in the last quarter of 2019. This was partly due to concern about the UK crashing out of the EU. And, of course, last December’s snap election.
Both were Boris Johnson’s responsibility…
Manufacturing fared badly over the quarter too; with the motor industry hit most by ongoing Brexit uncertainty. And the UK’s trade deficit also widened - from £4bn, between July and September, to £6.5bn.
This was hardly encouraging, given key Tories’ predictions about the brave new world of ‘Global Britain’. They had, in fact, promised a “tidal wave” of business investment once back in power - in addition to trade deals. Those have, in the most part, failed to materialise.
The snap election also depressed economic activity
According to surveys carried out by IHS Markit and the Chartered Institute of Procurement and Supply, the snap election depressed companies’ activity levels in November. High street spending also stalled and business investment was put on hold.
The ‘Boris bounce’ failed to emerge
The much touted post-election ‘Boris bounce also failed to emerge - with household spending at its weakest in four years - at 0.1% . This meant the retail sector had a far less happy Christmas than had been predicted.
Another over optimistic prophecy?
The whole of 2019 was, in reality, pretty economically stagnant - much like most of the previous decade. Economists labelled it the ‘weakest year outside a recession since the Second World War’. And the ONS described it, succinctly, as ‘volatile’.
The Tories’ economic record is not ‘strong and stable’
Despite popular perceptions, and their own sloganeering, the Tories economic record really isn’t strong and stable. Since their return to office as part of the coalition, in fact, the economy has been severely choked.
Their ill judged Austerity Programme and Long Term Economic Plan stalled the UK’s recovery. Productivity has plunged ever since, and household debt risen - alongside worrying levels of wage stagnation. The chart below, from an LSE paper on living standards, indicates how badly UK pay packets have been hit.
And, despite all the pain inflicted by this programme, our external deficit has actually increased. The UK’s national debt has also doubled - it now stands at more than £2 trillion. And what really happened, under the auspices of austerity, was an ideological shift in the structure of the economy.
Tory policy left us vulnerable to the pandemic
This showed itself in the UK’s precarious position at the start of the Covid 19 crisis. Stripped back public services struggled under the strain, and insecure employment put many people at risk. Increasing poverty levels, and health inequalities have also affected our resilience. It’s no wonder then we now have the largest recession of any G7 country. Not to mention the highest excess death rate anywhere in Europe.
Our reliance on the service economy, and spending, is also a problem. This is the legacy of previous Tory administrations including, of course, the Thatcher government. The scale of this shift is illustrated clearly in the first two charts below. And the subsequent soar in UK inequality can be seen clearly in Figure 1.
Services are, sadly, the very industries hit most by the Coronavirus crisis. And our reliance on them makes the UK’s road to recovery even more rocky.
What will recovery look like?
Because of the nature of the current crisis, accurate predictions are really difficult to forecast. The news that GDP rose by 8.7% in June is, at least, a little bit encouraging. It would be reckless though for the government to assume the UK will enjoy a sustained “V-shaped recovery”. GDP remains 17.2 % smaller than in February - and a second wave of Covid19 may well be looming.
Added to this is, of course, the end of the furlough scheme, potential mass unemployment and yet more uncertainty.
We’d argue the real solution is more far reaching - and involves a reframing of our whole economy. Those are subjects for future posts. But, in the meantime, we think it’s really important to remember one thing:
However often Boris Johnson claims Covid 19 is the core of his economic failures - it really is only one part of the problem.