The Office for National Statistics (ONS) confirmed the huge second quarter contraction after a 2.2 percent fall in the first three months of 2020. It comes after ONS data showed around 730,000 UK workers have been removed from the payrolls of British companies since March when the coronavirus lockdown began in a sign of the toll taken on the economy by the pandemic. Employment also dropped by the largest amount in a quarter since 2009 between May and June.
Economic uncertainty caused by the pandemic means Chancellor Rishi Sunak may delay his autumn Budget.
Fears of a second wave of Covid-19 had led Mr Sunak to consider delaying major public spending decisions until after the crisis, most likely until the spring.
Despite the record-breaking GDP slump expected for the second quarter, experts will be keenly watching the monthly figure for June amid predictions it will show a sharp eight percent bounce-back as lockdown restrictions eased further.
This follows a far-lower-than-expected 1.8 percent rebound month-on-month in May.
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FTSE 100 LIVE: The UK has plunged into another recession
11.00am update: More dire warnings from experts
Samuel Tombs at Pantheon Macroeconomics blamed the Government’s slow response to Covid-19 for the depth of the UK’s second-quarter contraction.
He said: “The long duration of the lockdown in the second quarter, due to the Government’s slow response to Covid-19 in March, followed by its failure to prevent the virus from spreading from hospitals, was at the root of the economy’s under-performance in the second quarter.”
He warned the rebound will “peter out in the autumn” with further lockdowns likely.
The Institute of Directors (IoD) and British Chambers of Commerce (BCC) called for Chancellor Rishi Sunak to take further action before the autumn statement to help prevent a disaster for jobs and businesses.
“The battle now is to prevent longer-term scarring from this plunge in economic activity,” according to IoD chief economist Tej Parikh.
He added: “The Chancellor must respond now with measures to support jobs by cutting the cost of employment, for instance by reducing employers’ National Insurance contributions.
“By the autumn, it might be too late to have greatest effect.”
10.15am: Bright start for EU markets
Like the FTSE, European markets are also enjoying a strong start to the day.
Euronext 100, CAC 40 and Swiss Market Index are all up on open.
Only DAX has suffered a small decline.
Euronext is up 0.35%, CAC 0.22% and Swiss Market 0.41%.
9.15am update: Experts issue warning of long, slow recovery
Britain faces a “long road ahead” to recovery after suffering the biggest hit so far from the pandemic of the major global economies, experts have warned.
Business groups and economists also cautioned the path of the recovery may not be smooth, given the threat of a second wave and possible further lockdowns, with a jobs crisis also on the horizon as Government support measures come to an end.
Melissa Davies, chief economist at Redburn, says: “There is a long road ahead for the UK economy to claw back its pandemic losses, all the while facing deflationary headwinds from large amounts of spare capacity and job losses.
“As the furlough scheme rolls off, more stimulus will be needed to support household incomes, not least if infection numbers rise in the autumn.”
James Smith, ING developed markets economist, said: “Rising unemployment is probably the biggest threat to the recovery at the moment, and this is being linked to the gradual unwinding of the Government’s furlough scheme over the next few months.
“Many firms, particularly in the hardest-hit hospitality/recreation sectors are still struggling as a result of ongoing consumer caution and social distancing constraints.”
8.30am: FTSE up on open
FTSE has mirrored yesterday’s bright start with an early-morning surge.
After opening at 6,154, the index is now sitting pretty at 6,191.
The rise comes despite ONS warning the UK is now officially in recession.
7:08am update: UK recession announcement leaves Sky News reporter speechless
Sky News reporter said: “We have never seen anything like this.
“Not only is the UK now formally in recession.
“It’s the deepest recession in UK history.
“The deepest of any G7 economy.
“The deepest since the invention of Gross Domestic Product.
“GDP shrank by 20.4 percent in Q2, acc to ONS. Follows a 2.2 percent fall in Q1.”
5.50am update: Asian stocks fall on US stimulus uncertainty
The index of ex-Japan Asia-Pacific shares shedding 0.76 percent, while Japan’s Nikkei gained 0.2 percent.
On Wall Street, the S&P 500 snapped a seven-day winning streak after coming within reach of its all-time peak hit in February just before the global outbreak of the COVID-19.
The declines came as political gridlock between the Republican White House and congressional Democrats over coronavirus relief continued for a fourth day, with each party blaming the other for intransigence.
The US economy could be left with measures US President Donald Trump called for on Saturday through executive orders to bypass Congress.
Junpei Tanaka, strategist at Pictet: “We have enormous uncertainty. It appears it’s getting harder for both sides to compromise as the election is nearing… Trump’s proposals would be smaller than markets have expected. There’s question over whether they are viable, too.”