The UK economy shrank by a record 9.9% last year but narrowly avoided a much-feared double-dip recession. The shrinking economy is thought to be largely due to coronavirus restrictions according to figures from the Office for National Statistics (ONS).
The latest report shows that the UK’s economic contraction was more than twice as much as the previous largest annual fall on record.
There was some good news even though the overall annual report looked bleak as the economy recovered to grow by 1.2% in December, after shrinking by 2.3% in November.
This is thought to be due to the relaxation of lockdowns during the run-up to Christmas, but many industries which had started to recover lost ground were hit again and suffered further losses such as automotive, hospitality, the beauty sector such as hairdressers.
The slight growth in December confirmed economists’ hope, that the UK economy looks set to avoid what could have been its first double-dip recession in over 40 years. However, with the lockdown currently in full force, there is some trepidation as to what the figures for January and February bring.
What is a Double-Dip Recession?
A recession is defined as a period of two consecutive months where a country’s economy shrinks. A double-dip recession is when the economy recovers for a short period of time into growth only to fall back into shrinkage once more.
Speaking about the news, Chancellor Rishi Sunak said: "Today's figures show that the economy has experienced a serious shock as a result of the pandemic, which has been felt by countries around the world.
"While there are some positive signs of the economy's resilience over the winter, we know that the current lockdown continues to have a significant impact on many people and businesses.
"That's why my focus remains fixed on doing everything we can to protect jobs, businesses and livelihoods."
Britain has suffered a torrid time during the coronavirus pandemic, as it reported Europe's highest death toll and also sits near the top of the world's highest death tolls per capita. This has led to long periods of lockdowns and continuous restrictions, which it seems have had a record-breaking negative impact on what was a thriving economy a year ago.
The blow suffered by the large service sector, on which the UK is very dependant, much of which has been closed for the best part of the last year has been cited by many as one of the largest contributing factors to the damage suffered by the UK economy.
However, there is hope with Britain boasting the highest vaccination rate of most European countries so far, raising the prospect of a faster overall rebound for its economy, although experts are cautioning that this may not occur until later this year.
Paul Naha-Biswas, founder and CEO of Sixley, shares some of the outcomes of the 2008 recession and how a similar economic downturn could lead to greater innovation and success in UK businesses.
On 12 August, the worst-kept secret in the country came out, and the UK entered a recession for the first time in eleven years.
Few were surprised by the news. In the months preceding the announcement, the economy went through a period of unprecedented disruption due to the COVID-19 pandemic and the subsequent lockdown, culminating in GDP plummeting by 20.4% within the first three months of the year.
But, while the ‘R’ word might send a shiver down the spine of most businesses, it may surprise you to learn that many of the household brands we use today were formed in the last global financial crisis (GFC). Uber and Airbnb were just two businesses founded during the 2008 crash and used the recession as an opportunity to innovate within their sector.
So, with this in mind, what lessons can businesses learn from the last financial crash and where are the opportunities for innovation this time around?
Lessons from the 2008 financial crash
In the last recession, the consumer businesses that did well were those that offered services or goods at a far lower cost than pre-GFC.
As budgets tightened, people were increasingly prepared to change their consumer behaviour and explore new digital-first businesses to save money. As a result, we saw a significant rise in casual dining and low-cost retail – such as Boohoo – and also a spike in digital businesses, such as Airbnb and Uber that, through their use of lateral business models, brought quality services to people at a much lower price than competitors. Who could have imagined before 2008 that you could book a whole apartment for less than a hotel room or get driven around town for half the cost of a black cab?
In the last recession, the consumer businesses that did well were those that offered services or goods at a far lower cost than pre-GFC.
How COVID-19 is changing consumer behaviour
A similar trend is emerging during the COVID-19 recession, with Britons cutting back hard on their spending – both out of worry and due to a lack of spending opportunities.
Consumer spending fell by 36.5% in April compared with the same month last year, which followed a 6% drop in March. During the same period, spending on travel nearly halved, and outlay on pubs, clubs, and bars dropped by 97%.
However, the unique circumstances of COVID-19 have created a new trend in consumer behaviour that wasn’t apparent in the GFC. The Government lockdowns actioned around the world has shown businesses how much of our economy can shift online. And the longer restrictions go on for, the less likely it is that businesses will return completely to their post-COVID-19 setup.
With more people staying at home, there will be increased demand for digital, online services and more opportunities for businesses to innovate. Take Hopin, a virtual events company, for example, the brand spotted a gap in the market created by everyone staying inside during the pandemic and raised over $170 million from investors and built up a $2 billion+ valuation since lockdown began, despite only being founded in 2019.
Hopin isn’t the only business success story from COVID-19 and with the pandemic likely to bring about permanent changes in consumer behaviour, there are plenty of opportunities for entrepreneurs to establish businesses that will disrupt their sector in a similar way to how Uber and Airbnb did in 2008.
The availability of excellent talent
However, increased consumer demand for digital services, isn’t the only reason why now is an opportune moment for innovation.
In the GFC, labour turnover fell significantly – from 18% of the workforce in 2006 to a low of 10% in 2013 – as workers looked to hold onto secure jobs and employers put a pause on recruitment.
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Once again, a similar trend is emerging, with employment opportunities falling by 62% across the UK in the three months to June compared to the same quarter last year.
While this isn’t the ideal situation for jobseekers, businesses now have a huge and diverse talent pool to choose from. For example, start-up founders can bring in highly experienced, motivated employees without having to poach or hire on full-time contracts, something that many start-ups may otherwise struggle to afford.
And there’s promising signs that current prospects for jobseekers will change soon. Following news that two potentially effective vaccines will be rolled out in the new year, shares in businesses skyrocketed on newfound optimism suggesting they will bounce back. Similarly, in the aftermath of the GFC, spend on recruitment agencies bottomed out at 75% of pre-2008 levels before eventually exceeding pre-recession levels by 2013/14.
The great American writer Mark Twain once said that history doesn’t repeat itself, but it often rhymes, and, in this instance, the saying rings true. Although the circumstances may be different, the COVID-19 recession, like the GFC, has opened new markets that businesses, if they are fast enough, can take advantage of. With a swell of excellent, experienced candidates available and changing consumer behaviour, the environment is perfect for new start-ups to emerge and become this decade’s Airbnb and Uber.
The UK economy grew by a record 15.5% from July to September, according to new figures released by the Office for National Statistics (ONS) on Thursday, ending a six-month recession induced by the first wave of the COVID-19 pandemic and subsequent lockdown measures.
The figures match the ONS’s initial estimate of GDP growth in Q3, though they fall short of economists’ predicted growth of 15.8%. Nevertheless, the July-September growth of 15.5% represents the largest quarterly jump in GDP the ONS has posted since records began in 1955.
UK GDP contracted by a fifth in Q2, the most extreme slump on record – and analysts have warned that the economy is likely to shrink again in the run-up to 2021 as renewed lockdown measures have been imposed across England, set to continue until 2 December.
In its release, the ONS noted that the Q3 recovery was driven in large party by household spending, while business investment remained “much weaker”. Though the recovery since July has been encouraging for investors, the UK economy as a whole remains 10% below 2019 levels.
September-specific data from the ONS revealed that the economy grew by 1.1% during the month, indicating that the pace of the UK’s economic recovery has slowed significantly.
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“Today’s figures show that our economy was recovering over the Summer, but started to slow going into Autumn,” said Chancellor Rishi Sunak in a statement. “The steps we’ve had to take since to halt the spread of the virus mean growth has likely slowed further since then.”
Samuel Tombs, Pantheon Macroeconomics’ chief UK economist, predicted that GDP would shrink by around 0.5% during Q4, with little chance of recovering to September levels until spring of 2021.
Figures posted by the Office for National Statistics (ONS) on Friday showed UK GDP grew by 6.6% in July, the most recent month where data is available. This marks the third month of economic expansion in the country.
However, the growth observed during July was slower than the 8.7% GDP rise in June and remains 11.6% down from February levels. It also did not quite reach analysts’ projections of 6.7% growth.
The ONS noted that, while it is on the path to recovery from the initial shock of the COVID-19 pandemic, the UK "has still only recovered just over half of the lost output caused by the coronavirus”.
UK GDP fell by over 20% between April and June, precipitating the country’s worst recession on record. The outbreak of the COVID-19 pandemic and resulting lockdown measures dealt severe damage to the country’s tourism, retail and hospitality sectors.
The growth seen in July was due in large part to the reopening of pubs, restaurants and hairdressers during that month, boosted by the government’s Eat Out to Help Out scheme. The construction industry saw the best performance out of all sectors during July, though its output remains 11.6% below pre-COVID levels. Manufacturing also remains 8.7% down.
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Also on Friday, the Treasury Select Committee suggested a targeted extension of its furlough scheme, warning of mass long-term unemployment and the potential for viable firms to fail due to a lack of government support. The furlough scheme is set to end in October.
The Treasury added that it would "continue to innovate in supporting incomes and employment."
Figures released by the Cabinet Office on Monday revealed that the Japanese economy shrank at its fastest rate in history between April and June, owing to the impact of the COVID-19 pandemic.
Japan’s GDP fell by 7.8%, or 27.8% on an annualised basis. This marks Japan’s third successive quarter of economic contraction – its worst performance since 1955 – having slipped into recession earlier this year. The fall also wiped out the gains brought by Prime Minister Shinzo Abe’s “Abenomics” stimulus policies, which were rolled out in 2012.
The previous worst contraction in Japanese history was an annualised 17.8% drop in the first quarter of 2009 as the global financial crisis took hold.
Takeshi Minami, chief economist at Norinchukin Research Institute, noted the COVID-19 pandemic and resultant lockdown measures’ impact on sales as the prime cause for the contraction. “The big decline can be explained by the decrease in consumption and exports,” he said.
“I expect growth to turn positive in the July-September quarter. But globally, the rebound is sluggish everywhere except for China,” he added.
The struggle to weather the impact of COVID-19 has compounded Japan’s economic worries, with 2019 seeing sales tax rise to 10% as well as widespread damage caused by Typhoon Hagibis in October.
Japan’s severe economic downturn mirrors that of other nations. US GDP declined at a rate of 32.1% in the last quarter, while the UK fell by 20.1%.
New figures from the Office for National Statistics (ONS) have shown that UK GDP fell by more than 20% between April and June. Following on from a drop of 2.2% between January and March, this means that the UK has now officially entered a recession.
The 20.1% drop in quarterly GDP exceeded that of all other G7 nations; France’s GDP fell by 13.8%, followed by Italy at 12.4%, Canada at 12%, Germany at 10.1%, the US at 9.5% and Japan at 7.6%. It is also the steepest recorded contraction since the ONS began collecting data in 1955.
In an interview with Sky News on Wednesday morning, Chancellor Rishi Sunak attributed the contraction to the “composition” of the service-based UK economy, which was heavily affected by the COVID-19 pandemic and resultant lockdown measures.
“Social activities, for example going out for a meal, going to the cinema, shopping, those kinds of things comprise a much larger share of our economy than they do for most of our European comparative countries,” he said.
“So in a situation where you have literally shut down all those industries for almost three months, a long period of time, it is unfortunately going to have an outsized impact on our economy.”
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Commercial data and analytics firm Dun & Bradstreet have updated their predictions for the UK economy in 2020 following the new figures’ release. Their updated forecasts now predict a 9.8% drop in real GDP for the year.
“Dun & Bradstreet’s latest proprietary data for Q2 shows that payment performance has deteriorated across all 14 sectors tracked during the pandemic, despite several quarters of continuous improvement prior to lockdown,” wrote the firm’s chief analyst, Markus Kuger. “During the coming quarters, it will be more important than ever for businesses to assess potential credit risk across their existing and future business relationships.”
The basic definition for a recession is a decline in GDP over two consecutive quarters. The UK has not experienced a recession since the 2008-2009 financial crisis, which saw a peak quarterly dip of 2.2% in GDP – just over a tenth of the plunge recorded for Q2 2020.
Figures released by the US Bureau of Economic Analysis on Thursday have shown that real gross domestic product declined at a rate of 32.9% in the second quarter of 2020, the worst economic contraction in US history.
Analysis of Q1 revealed a 5% fall in GDP from January through to March as the COVID-19 pandemic was first reported in America. Prior to the new figures, GDP in the US has never fallen by more than 10% on an annualised basis since records began shortly after the Second World War.
Stocks were shaken by the report, with the Dow Jones, S&P 500 and Nasdaq falling by 1.5%, 1% and 0.56% respectively. International markets fared more poorly; the FTSE 100, DAX and CAC fell by 2.6%, 3.2% and 1.9%.
However, the reported economic contraction was not quite as precipitous as analysts predicted. Economists surveyed by Dow Jones reportedly expected to see GDP fall by 34.7%, and those polled by MarketWatch predicted a drop as great as 35%.
Mark Zandi, chief economist at Moody’s Analytics, remarked that the latest report “just highlights how deep and dark the hole is that the economy cratered into in Q2”.
“It’s a very deep and dark hole and we’re coming out of it, but it’s going to take a long time to get out,” he said.
Real GDP is the broadest measure of a country’s economic activity, with downturns reflecting significant disruption in spending. In the US’s case, the numbers reflect the closure of restaurants, retailers and other non-essential services in response to the COVID-19 pandemic that continues to spread throughout the country.
Iskander Lutsko, Chief Investment Strategist and Head of Research for ITI Capital, offers Finance Monthly his perspective on how US markets are likely to trend in the latter half of the year.
Throughout the first six months of 2020, world markets have been volatile to say the least. Global stock index values have so far been characterised by record beating losses and resurgent gains; The Dow Jones and FTSE 100, for example, dropped more than 20% in March, but have already regained much of those losses in the time since. Additionally, the Nasdaq recently hit a record high, and the S&P 500 reached a local high at the start of June below an all-time high on 19 February 2020, and a severe dip in March.
The primary reason for this market volatility is not the US and China trade-related disputes or any other geopolitical market-sensitive tensions which have become an essential part of the global volatility environment since 2018. Quite clearly, markets have been impacted most prominently by COVID-19, and none more so than in the US, which is the world’s largest economy, reserving currency account for 65% of all global transactions – and now also the epicentre of COVID-19, accounting for 26% of total recorded infections worldwide.
All eyes have been on the US in recent weeks. Controversial decisions to reopen certain aspects of society and reduce lockdown measures have seen the number of infection rates rise across the country after a slight decrease. As a result, US equity markets have mostly been driven by HF flows being reallocated into IT stocks, primarily in those that benefited from quarantine. Hence, cyclical companies are trading, on average, 30% below its pre-COVID levels, as opposed to IT companies and biotechnology companies which recorded historical highs.
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However, this is not a second wave; it is a mid-cycle of the first. As in the sea, waves are usually preceded by a trough, and we don’t expect the official trough of the first wave to arrive until at least the end of August. From there, we might expect a second wave of the pandemic to hit in November or December 2020. Of course, this is all speculation, and entirely dependent on weather, vaccinations and lockdown measures – however, as analysts, it’s our job to predict the most likely scenario based on the data that we have, analyse fluctuations and predict market movements accordingly.
Thus, we have crunched the numbers and come to the conclusion that the peak of the current market run will last two months, from the end of July until the end of September, coinciding with a hopefully declining number of cases. Before that, correction and consolidation are likely to dominate, implying that there will be high demand for gold and US corporate bonds, bolstered by a strong US dollar positioning against currencies in Europe and emerging markets.
As soon as investors gain confidence, either through success stories over vaccine trials or new evidence of the infection rate declining in the US and other countries, abundant cash and excess global liquidity from central banks should push the S&P 500 to record highs. However, for that to happen, countries will need to bring back temporary quarantine and policy measures to reduce further risks of the virus spreading.
According to our base scenario, we could see the S&P 500 heading to 3500 points by end of September, pulled by oversold companies from the production and service sectors of the U.S. economy.
As soon as investors gain confidence, either through success stories over vaccine trials or new evidence of the infection rate declining in the US and other countries, abundant cash and excess global liquidity from central banks should push the S&P 500 to record highs.
But risk will not fade away entirely - it’s worth also remembering that the US presidential election is imminent. Even in a ‘normal’ year this election would be considered unique, as former Vice President Joe Biden faces off against Donald Trump, whilst celebrities such as Kanye West have put their two pence in (and quickly withdrawn it), it’s fair to say that US politics has, and will continue to play a role in market volatility in 2020.
If Biden wins, the market will probably see strong sell-off, as his first policy actions will be aimed at restoring corporate taxes to levels seen before Trump's cuts, though it’s worth mentioning that this will be gradual, as it would be unwise to raise taxes at times when 18 million are still unemployed in the USA compared to pre-COVID numbers. Biden also plans to significantly reduce budget spending, which could top contribute to an unprecedented 20% of GDP this year, up from 4.7% in 2019.
Furthermore, if no vaccine will be in place it’s likely that the second wave of the pandemic could come in November or December, coinciding exactly with the presidential election. Hence, markets will be extremely shaky during this period, the extent of which can not be accurately predicted until it’s closer to the time, but certainly worth remembering for keen eyed investors and traders.
Therefore, for short term returns, there are good chances of buying cyclical stocks at the dip now, presenting lucrative opportunity for opportunistic investors. However, in these unprecedented times, almost anything can happen, and it is strongly advised that asset managers and traders looking to expand their portfolio seek professional advice aided by cutting edge technology to ensure that they are making the most informed decision available to them.
The International Monetary Fund’s June update to the World Economic Outlook paints a bleak picture for all nations in the short term. Examining the current economic trajectories of developed nations, the report estimates a contraction of 8% in the United States’ real GDP for 2020 – which, if true, would eclipse the 4.3% lost in the Great Recession of 2007-9. However, the full report specifies that the world’s GDP downturn “could be less severe than forecast if economic normalization proceeds faster than currently expected in areas that have reopened”, citing China’s revived service industry and investor enthusiasm as an example of an ideal rebound.
On paper, then, it would appear that the surest route to recovering the economy would be a fast yet vigilant return from lockdown, with businesses enabled to reopen once they have deployed adequate safety measures. This is the stated aim of the US government. The Congressional Budget Office have estimated that the COVID-19 crisis will cause upwards of $8 trillion worth of damage to the US economy, and a rough $6 trillion has already been issued to combat the economic and social ramifications of the pandemic. Given that the US’s national debt surpassed $23 trillion by the end of 2019, it is no surprise that the US’ political leadership intends to soften the blow by encouraging the swiftest economic recovery possible.
However, while China was reportedly able to gain control over the spread of COVID-19, the methods it used – which have included the restriction of free movement, militant policing of suburbs and the enforced wearing of masks even in citizens’ own homes – would be untenable in the United States, especially now that authority over lockdown measures has been largely delegated to the states rather than overseen directly by the federal government.
The Congressional Budget Office have estimated that the COVID-19 crisis will cause upwards of $8 trillion worth of damage to the US economy.
With well over a million active cases within the country and as-yet insufficient track-and-trace mechanisms in place to interrupt chains of infection, the efforts of individual states to return Americans to work are all but guaranteed to cost lives. The true variable is what kind of balance state leaders are willing to strike.
Walking It Back
The rush to reopen is further complicated by the ease with which it can go wrong, causing a greater surge in infections than leaders predicted. The only real recourse in these cases is to reverse the reopening process, thus causing minimal increases in business activity and further prolonging the need for strict lockdown measures to remain in effect.
This is what we are currently witnessing in Texas, a state that was at the forefronts of efforts to reopen for business as soon as feasibly possible. Governor Greg Abbott’s “Open Texas” programme was an attempt to open non-essential businesses in measured “phases” while meeting the minimum recommended health protocols of the Texas Department of State Health Services.
Each of these phases saw an uptick in recorded cases, which then came to a head in June as confirmed COVID-19 cases doubled in the span of three weeks and a record 5,100 COVID-19 hospitalisations were reported statewide. Rather than risk the health of staff or customers, companies like Apple voluntarily reclosed their stores across the state, and Abbott issued an order for all bars in the state to shutter once again.
A similar situation has unfolded in Florida, where a record daily rise pushed Miami beaches (a cornerstone of the state’s $88 billion tourism industry) to reclose, and across a number of other states whose reopening efforts have been comparatively less forceful. The worst of all worlds – an extended business-stifling lockdown and a spike in COVID-19 cases – could be on the horizon.
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The Human Cost
Ultimately, the weighing of lives against renewed economic activity might itself be useless. Speaking with Reuters, UCLA professor Andy Atkeson has theorised that a unilateral end to lockdown would simply mean that “Americans will lock themselves down” for fear of the resultant waves of deaths, meaning no significant increase in consumer spending. Also to be accounted for would be the overall loss of productivity from the many employees whose personal lives would be impacted by the resurgence. Mass death is simply not good for the economy.
This is not to say that the US must forsake all economic activity until a coronavirus vaccine has been produced. For another way, we can look to the example of South Korea, whose aggressive track-and-trace programme stamped out the initial wave of COVID-19 and has continued to isolate and contain smaller outbreaks in the months since. South Korean restaurants, bars and clubs remain open, and – crucially – deaths from COVID-19 have been kept low (the count stands at 282 as of publication). As a result, South Korea’s GDP is expected to fall by a mere 0.2% this year.
Whether there is time for the US to adopt similar policies remains to be seen. Whatever the case, every advance towards normalcy must be made with greater care than we have seen thus far, or else the costs will quickly eclipse any benefits reaped.
This reputation has been particularly prevalent since July 1997, when the region gained independence as a sovereignty and set about establishing itself as a low-tax haven with a raft of lucrative free trade agreements.
In the modern age, however, what is it that makes Hong Kong such an attractive proposition for international investors, and what role does the digital sector play in this?
Accessing a Free Market Economy
The most apt description of Hong Kong was provided by the economist Milton Friedman, who opined that the region was the world’s greatest experiment in laissez-faire capitalism. There can be little doubt that Hong Kong represents the quintessential free market economy, and one that’s built on the principle of lowering trade barriers and minimising corporation tax (this is currently fixed at 16.5% and will not change until 2022 at the earliest).
This is one of the main reasons for the popularity of Hong Kong amongst overseas business owners, who’ll have the opportunity to minimise their operating costs and boost their bottom line profit accordingly.
The low rate of corporation tax is also appealing to forex trading firms, which already benefit from the fact that most brokers don’t charge a levy on currency trading. Not only this, but Hong Kong is now ranked as the fourth-largest financial centre in the world with a 7.6% share of the global forex market, while the region is also home to the second-largest exchange in Asia (behind Singapore). Hong Kong is also renowned for having the fifth-largest stock exchange and largest initial public offering market in the world, and this highlights the appetite for domestic and international investment in an open and prosperous economy.
The low rate of corporation tax is also appealing to forex trading firms, which already benefit from the fact that most brokers don’t charge a levy on currency trading.
The nature of Hong Kong’s economy also contributes to an incredibly influential and cash-rich consumer base, which ensures that firms are able to optimise turnover on an annual basis.
In US dollar terms, one in seven Hong Kong households exist in the millionaire category, and while real estate represents 70% of these assets, there’s clearly an opportunity for international businesses to thrive and target affluent consumer demographics.
How is the Digital Sector Faring in Hong Kong?
Despite the issues that the region has faced in terms of social unrest and angst, it continues to record average annual GDP growth of around 5% in real terms. One of the key factors here is also the rise of digital and web-based businesses, with Hong Kong’s relaxed commercial climate ideal for low-overhead and tech startups who wish to target a vast and diverse marketplace.
The open nature of Hong Kong’s economy also means that it’s easier than ever for companies to invest in advanced technologies and computational infrastructure, creating a competitive and potential lucrative landscape where profit margins are often higher than in developed economies.
Make no mistake; there’s a clear alignment between the values of Hong Kong’s economy and the ambitions of domestic and overseas SMEs, and this continues to build the digital landscape and lead into a far broader economy-wide transformation. Of course, we’ve already touched on the viability of launching a digital forex trading business in Hong Kong, and this is indicative of an economy that’s perfectly suited to online companies and tech-led startups.
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In terms of the best practice, the way in which you open a business in Hong Kong (digital or otherwise) will depend on the sector that you operate in. For example, firms looking to operate in the competitive forex space will need to identify a key differentiator, while also relying on key knowledge and datasets from the Asian marketplace.
The same principle of standing out from the crowd also applies when launching a business in the digital space, with marketing and the ability to target key demographics in Hong Kong also crucial to new ventures.
The Bank of England (BoE) has announced plans to pump an additional £100 billion into the UK economy to aid the country’s recovery from the COVIID-19 crisis.
The Bank’s nine-member Monetary Policy Committee voted 8-1 on expanding its government bond-buying “quantitative easing” programme to £745 billion, up from £645 billion. The move was largely predicted by economists, who estimated an increase of £100-150 billion.
The MPC also voted unanimously to maintain interest rates, which currently stand at a record low of 0.1%.
In its statement on the new policy decisions, the Bank noted that there are reasons to be optimistic about the state of the UK economy amid the pandemic – particularly the lower-than-expected fall in GDP during Q2 of 2020 – though it added that the outlook for the UK and world economy remains “unusually uncertain”.
“There is a risk of higher and more persistent unemployment in the United Kingdom,” the statement reads. “Even with the relaxation of some Covid-related restrictions on economic activity, a degree of precautionary behaviour by households and businesses is likely to persist.”
“Inflation is well below the 2% target and is expected to fall further below it in coming quarters, largely reflecting the weakness of demand.”
Official figures released by China on Friday have shown a decrease of 6.8% in the country’s GDP between January and March.
This marks the first economic contraction that China has experienced since Beijing started releasing quarterly GDP figures in 1992. Some observers estimate that this is the country’s first period of negative growth in over four decades, pointing to the downturn of 1976 that marked the end of the Cultural Revolution.
The fall has been predicted for some time, though the figures released have been more dire than most expected; analysts at Reuter’s predicted a decline of only 6.5%.
Other data released painted an equally negative picture. Retail sales, fixed asset investment and industrial output have all seen significant declines.
These changes are an effect of the COVID-19 epidemic, which originated in the Chinese city of Wuhan. While China announced on April 6th that it had it had experienced no new coronavirus deaths for a full day, it has since revised the number of recorded deaths upwards by 50%.
China is now taking steps towards restarting its economy, ending quarantine measures and reopening its factories. However, the global fall in demand for its goods is unlikely to see a reversal so quickly.
The contraction in China’s economy is also likely to have an impact across the rest of Asia as Chinese stimulus spending is reduced.
The International Monetary Fund has warned that the world economy faces a recession that could be as damaging as the Great Depression of the 1930s.
