Guru Gyan
Published in

Guru Gyan

It’s Official. UK Is Now In A Recession.

With the UK entering into a recession, we face a big question — If there was no pandemic, would the country’s economy be alright?

What Happened?

The UK is officially in a *recession for the first time in 11 years. The UK’s economy contracted by 20.4% in the April-June quarter of 2020, which is the worst quarterly decline on record. The country’s economy plunged by 2.2% in the previous quarter.

*A country is said to be in a recession when its GDP has been in decline for two or more quarters (six months or more).

The Office for National Statistics (ONS) said that compared with the end of 2019, UK economic output slumped by a cumulative 22.1% in the first six months of 2020, a worse outcome than Germany, France and Italy, and double the 10.6% plunge recorded in the United States.

How Did This Happen?

As per the statement by ONS, the dip in the second quarter was driven by the 20% slump in output in April 2020, which is the biggest monthly drop on record reflecting widespread monthly declines in output across the services, production and construction industries.

Services, production and construction are those industries that have been most affected by the restrictions imposed due to the pandemic. This makes sense. When a country goes into lockdown, certain activities come to a complete stop. If you think that the UK is another country that fell prey to the pandemic after Singapore, then you are forgetting one more important historic event.

Brexit Blues

Most of the headlines that were printed in the newspapers during 2018 and 2019 had the word ‘Brexit’ in them. The markets fluctuated every time the UK’s deadline to leave the European Union was extended, sparking fears that there might never be a deal at all. However, the UK has finally left the EU after several months of negotiations.

Yet, the UK still doesn’t have a Brexit deal. After leaving the EU on January 31, 2020, a “transition period” began immediately. This means that the UK has to reach a deal before the end of 2020, or it should leave the single market with “no-deal” and will have to revert to World Trade Organisation rules.

Relocation Of Businesses

Fears over a “no-deal” Brexit pushed companies to relocate to other countries. According to the Netherlands’ Foreign Investment Agency, the Netherlands has attracted 140 companies, of which, 78 firms moved to the country last year. This relocation from the UK is anticipated to create over 4,200 jobs and infuse €375 million in investment into the Netherlands’ economy. The NFIA is now in discussions with 425 “Brexit companies” about making a similar move.

All this investment and labour could have stayed in the UK if the country had a deal, which would have supported businesses. Besides companies, the country itself said that Brexit may lower the UK’s growth by 6.7% over 15 years. That’s if there is a trade agreement but restrictions on immigration.

A new study by the UN Conference on Trade, Investment and Development (UNCTAD) says that the UK risks losing up to 14% ($32 billion) of its exports to the EU if it leaves without a deal or non-tariff measures.

And this is what makes us think that even if there was no pandemic, the UK economy would have been battered by the uncertainty over Brexit. This makes us wonder whether the country would be able to survive from all of this because right now, the UK has to focus on not only the pandemic but also, the Brexit deal. Will they be able to do it successfully? That’s a question only time can answer.

Head to moneyguru’s Insight section to stay updated on all major financial news updates of the day!

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
moneyguru

moneyguru

Your Best Direct Mutual Fund Investing Experience Begins Here. Invest, Read and Track — at one place & for free! vist us at: www.moneyguru.in