UK economy’s 20% record plunge adds pressure for more aid

Bloomberg

The UK economy shrank a record 20.4% in April as businesses and workers reeled under the lockdown designed to control the coronavirus pandemic.
The contraction means the nation has effectively seen almost 18 years of growth wiped out in two months. While a rebound is likely as businesses start to reopen, the grim figures will increase the pressure on the government and Bank of England to do more to support the recovery.
The hit to the economy rounds off a difficult week for Prime Minister Boris Johnson, who is facing mounting criticism from politicians and scientific advisers after they blamed his Conservative administration for making a series of grave mistakes since the beginning of the outbreak.
In addition to registering the highest death toll in Europe, the UK has also paid an heavy economic price. The OECD says the country could see one of the developed world’s deepest recessions in 2020, with output slumping more than 11% — the most for more than 300 years.
“April was the first month to be fully encompassed by the lockdown. But these figures are nevertheless shocking, and it goes without saying that this kind of fall in activity is virtually unprecedented, either in scale or speed,” James Smith, an economist at ING, wrote in a report.
Social-distancing rules and prospect of a no-deal Brexit “all pose challenges to UK economic recovery,” and will keep the pressure on the BOE to increase its bond-buying program when it meets next week, he said.
That view is shared by most economists, who expect purchases to be stepped up by at least 100 billion pounds. Bank of America Merrill Lynch economists said Friday they expect a package of measures in August, including cutting interest rates to 0%, making the terms of a lending program more generous and possibly implementing a weak form of yield curve control, which would keep bond-market rates around a certain, low, level.
More support is seen as vital as the UK’s outlook darkens. Unemployment is widely expected to reach rates not seen since the mid-1990s, with more than 7,500 job cuts being announced alone as the lockdown hammers businesses from chemical manufacturers to airports. That’s despite massive government support that has left the taxpayer paying the wages of over 11 million people at a cost of 27 billion pounds ($34 billion) so far.
”We’ve always been in no doubt this was going to be a very serious public health crisis but also have big, big economic knock-on effects,” Prime Minister Boris Johnson said in a TV interview Friday. “We have been very badly hit by this.”