WATERLOO – The crash follows a 2.2% contraction in the first quarter, meaning the economy is officially in recession. The country’s finance minister, Rishi Sunak, said the figures “confirm that hard times are here.”
“Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will. But while there are difficult choices to be made ahead, we will get through this,” he said.
Lockdowns necessitated by the coronavirus pandemic were the principle cause for the widespread economic destruction. But there is ample evidence that policy decisions made by voters and their elected leaders — both in the recent past and years ago — made the crisis worse than it could have been.
Rewind to June 23, 2016. That’s the day the British people voted by a narrow margin to leave the European Union, their biggest export market, and embark on a new future outside the bloc.
The result was years of uncertainty that discouraged companies from investing in Britain and sapped the economy of much of its dynamism. Average annual gains in real GDP fell from 2.4% in the three years prior to the vote to 1.6% after, according to Berenberg.
“Future historians will mark 23 June 2016 as the day when the UK, like a train switching tracks, suddenly veered off onto a different path,” Kallum Pickering, a senior economist at Berenberg, said in a research note.
The malaise was well established when the coronavirus pandemic struck earlier this year, leaving the economy more vulnerable and flummoxing a government led by Prime Minister Boris Johnson that has been widely criticized for its response.
Johnson promised a “world beating” track and trace system, but it has not materialized. Care homes for the elderly have been ravaged by the disease, the government was slow to add testing capacity and the prime minister’s chief adviser confused government messaging on social distancing by driving hundreds of miles to a second home during lockdown.
One result: The UK economy has shed 730,000 jobs since the coronavirus pandemic shuttered businesses in March, with the young, the old and the self-employed bearing the brunt of the unemployment crisis.
The outlook for the UK economy remains bleak.
Even after years of back and forth over Brexit, the country has not yet negotiated a post-Brexit trade agreement with the European Union. The deadline for such a deal to be struck is the end of the year.
Talks are not going well — raising the possibility of another major shock just as the expected economic recovery gains momentum.
“Whether the post-Brexit path will run largely parallel to the old one, with the UK heading in a roughly similar direction … or take a new direction entirely, remains an open question,” said Pickering.