Two Decades Of UK Growth Disappears In Two Months As Country Faces Worst Slump Since 1706

“One has to be quite concerned about the path of recovery”, IMF chief economist Gita Gopinath said, during a video call recorded earlier this month and played Friday for the Asian Monetary Policy Forum.

“Many of these variables point to significant scarring effects”, she added.

Indeed. And that gets at one of the most pressing concerns about the COVID crisis. There’s a sense in which the “scarring” is more important than the shape of the recovery.

Those are obviously related issues, but the point is, five years from now, what’s going to matter isn’t whether the first half of 2021 was or wasn’t a “rocket ship” (to quote Donald Trump), but rather what kind of structural damage is observable. And whether consumer preferences have changed. And whether the de-globalization push in fact gathered steam due to the pandemic. And so on.

One imagines the IMF’s forecasts will be revised lower later this month. The June update is due on the 24th.

In its April forecasts, the fund saw the global economy contracting 3% this year, but more recent projections from the World Bank and the OECD are considerably more dour.

Underscoring the scope of the damage (and I do realize this doesn’t need further emphasis, but it’s difficult to avoid marveling at the numbers), the UK economy contracted 20.4% in April.

Needless to say, that is a record.

More poignantly, what you should note is that when considered in conjunction with March’s near 6% contraction, two decades of growth in the UK was vaporized in the space of 60 days.

Pressure is, of course, mounting on Boris Johnson, whose virus response is generally seen as inadequate, at best, and an abject failure at worst.

The official death toll in the UK is more than 40,000, and the actual number is likely closer to 50,000. Johnson is coping with a string of embarrassments after surviving his own somewhat harrowing bout with COVID-19, which at one point had the prime minister on the ropes.

Here’s Politico with a quick summary of recent events:

Neil Ferguson, who led the Imperial College team behind the influential epidemic model that informed U.K. strategy, told MPs [Wednesday] the epidemic had been doubling every three to four days before the lockdown was introduced at the end of March.

“Had we introduced lockdown measures a week earlier, we would have reduced the final death toll by at least a half,” said Ferguson, who advises the government via the Scientific Pandemic Influenza Group on Modelling (SPI-M) and was previously a member of the government’s independent Scientific Advisory Group for Emergencies (SAGE) – before having to resign over a breach of lockdown rules.

But Johnson, speaking at the government’s daily press conference shortly after Ferguson made the remarks, said it was “simply too early to judge ourselves.”

More than 41,000 people have died in the U.K. after testing positive for the coronavirus, far above estimates back in April, including from Ferguson himself, that between 7,000 and 20,000 people might die of the virus. The actual death toll, based on the number of death certificates mentioning the virus, is estimated to be more than 50,000 and is still rising, and the country looks likely to be the worst-affected in Europe.

Meanwhile, the Brexit drama is ongoing.

On Thursday, the UK backed away from the idea of imposing strict border controls in the wake of Brexit, as part of an effort to allay business concerns at a time when companies are still coping with the effects of the pandemic. During the first six months of 2021, firms will be given leeway on filing customs declarations and paying tariffs, irrespective of whether there’s a deal.

“The new border policy was announced after Britain and the EU agreed to step up the pace of their trade negotiations following months of sometimes bad-tempered deadlock”, Bloomberg notes, adding that “with just six months left until Britain finally leaves the bloc, businesses had been struggling to recruit a fraction of the 50,000 customs agents the transport industry says are necessary to prevent snarl-ups at the country’s ports once Britain leaves the bloc’s single market and customs union”.

That only solves one side of the problem, though. Apparently, the EU would have to agree to similarly lenient measures to prevent a situation where goods leaving the UK are subjected to full checks before they can enter the rest of Europe.

It is, as ever, a mess.

That is the extremely fraught backdrop against which the pandemic ravaged the country. The numbers out from ONS Friday showed that parts of the UK services industry suffered 90% declines in output during April.

The OECD said this week the UK could see an 11% annual contraction in 2020, and that’s in the organization’s more benign “single-hit” scenario.

If you’re wondering how that compares to history, the answer is not favorably.

In fact, it would be the worst annual downturn in 300 years.

The visual is from a 2010 quarterly bulletin from the BOE.

The enterprising among you can go here to download the entire data set used to construct that chart, then use ONS data to fuse the last nine years of annual GDP figures onto the end of it. When you do that, and then consider the OECD projection mentioned above, you end up staring at the worst downturn for the UK since 1706.

Nothing further.

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