The UK Economy shrunk by 20.4% in April as businesses closed due to the lockdown. This historic contraction will increase pressure on the government to launch stimulus programs to support economic recovery.
Currently, the government is paying 80% wages to around 8.9 million people through a state aid “furlough” scheme. Additionally, the government is also paying unemployment benefits to 2.1 million people. As a result, the UK taxpayer is shouldering the wages of 11 million people, to the tune of £27 billion (KSh3.6 trillion).
SEE ALSO: The UK Temporarily Bans Short-Selling of Italian & Spanish Stocks
A report by the British Office of National Statistics reveals that this is the worst recession since 1709. The service economy bore the worst of the brunt, with dominant services falling by 19%. Manufacturing fell by 24.3% whereas construction fell by 40.1%.
Economists believes that the downturn will increase bond-buying by the Bank of England, expecting purchases to grow by at least £100 billion. Further, Bloomberg expects the bank to cut interest to 0%, and possibly implement a low yield curve to keep bond market rates low.
Nevertheless, UK economist Andrew Wishart believes that the UK economy will recover after easing of the lockdown in May. However, the government will still have to develop mechanisms to stimulate activity in the economy.
“Given the lockdown started to be eased in May, April will mark the trough in GDP. So we are past the worst,” said Andrew.
