A strange headline you might think and perhaps I should explain it at the start. John Constable is a famous 18th Century landscape painter. He is renowned for his vivid details and in some of his greatest paintings such as The Haywain you can pick out in detail exactly what is going on. Sure, there is room to zoom into the picture and add some fantasy interpretations but as far as the basic story goes you are pretty clear. Picasso is at the opposite end of the scale (I'm no art expert but he is to me anyway). You know that something profound is going on but you're not quite sure what it is or where it will all end. I would suggest that as far as the economic situation in the UK is concerned we are more in a Picasso than a Constable phase.
So it's now official – the UK is now in recession. There will be few if any who will be the least bit surprised at this. It has been obvious pretty much since lockdown that this was going to happen and few other major economies outside of China have avoided it. Nevertheless the sheer scale of the recession makes for salutary reading. The Office for National Statistics (ONS) announced this week that the economy shrank by 20.4% between April and June. To put this in perspective the last time the UK was in recession was in 2009 after the financial crash when GDP was falling by about 2% in a quarter. There is clearly a whole quantum of difference between the two numbers.
A recession is present when an economy shrinks in two successive quarters. By this measure unless something even more disastrous and unprecedented happens officially this particular recession is going to be very short-lived. Remarkably, or so it initially seems, the economy was already starting to bounce back in June when it grew by 8.7%. It is expected that this trend will continue in July and beyond as the progressive releasing of lockdown restrictions should lead to some increase in economic activity as a result. Unless something catastrophic such as the re-imposition of a national lockdown takes place then the economy should continue to grow and the recession will officially end pretty soon.
But as we know there are lies, damn lies and economic statistics and in this case the latter does not tell anything like the full story. The key question is when will the UK economy return to its pre-pandemic levels and that remains anybody's guess though analysts are increasingly sombre about the prospects for any bounce back before 2022. Coincidentally, unemployment statistics also currently give a misleading picture. Those announced this month suggested relatively small increases in unemployment as a result of the pandemic but this figure is hugely distorted because many employees remain on furlough. This figure is also set to rise significantly in the next quarter possibly up to around 7.5% of the Labour force.
Questions are being asked about why the UK's economic statistics are so bad, worse indeed than anyone else in the G7. Chancellor Rishi Sunak has suggested that the UK's reliance on the service sector is one particular reason for this as much of the economy is driven by sectors such as hospitality which have been so badly hit by the downturn. Analysts also speculate that the extended period of lockdown compared to other European countries may also be a factor in the UK's relatively worse performance. Speculation has though started to appear in the press - and it is currently no more than that - that the Chancellor may choose to delay his October budget statement until things become clearer and the economic picture (presently more of an abstract Picasso than a Constable landscape) is not quite as obscure as it currently is. Resurgences of the virus in nearby France for example maybe be creating concerns that a similar situation might occur here and if that were to happen then the economic picture would become more of a Picasso than ever. The Chancellor needs greater clarity and positivity in the health outlook more than most other things, and he will be desperately hoping that he gets it.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
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