Millions of jobs at risk as UK economy shrinks by a fifth, union warns

Millions of jobs are at risk unless the government commits to large-scale investment in the economy, a union has warned, as alarming figures showed that output shrunk by a fifth in April.

Gross domestic product (GDP) fell by a quarter between February and April, with a further decline expected in May’s data.

Economists downgraded their forecasts for 2020 as the UK performed worse than many had expected during lockdown. A quick recovery from a deep recession is now a highly unlikely outcome, ministers were warned.

John Phillips, acting general secretary of the GMB Union, called for urgent action tailored to each sector of the economy.

“Workers, employers and communities need a plan,” Mr Phillips said.

“After a decade of austerity – and how ill-prepared that left us for this crisis – cutting our way out of this is not an option.

“Today’s figures show the scale of what we are facing. Entire industries and millions of jobs are at risk.

“The world has changed, and with that we need large scale investment in a new economy and sustainable industrial strategy that has fairness and working people at it’s heart.”

With a slow revival now expected, economists are now forecasting for a U-shaped return to growth, but fears remain that it could look more L-shaped, meaning a pronounced and long-term drop in output.

Matthew Oxenford, UK analyst from the Economist Intelligence Unit, said the contraction was the worst on record by orders of magnitude.

He added: “May figures will also be low, but from June as the economy reopens we paradoxically can expect very substantial rapid growth that still leaves us far below where we started the year.”

Howard Archer, chief economist of the EY Item Club, said that even before Covid-19 struck the economy had been “disappointingly lacklustre”.

EY now thinks the UK will shrink by 15 per cent this year, worse than the 13 per cent it had previously forecast.

A big concern is that consumers worried about their health or losing their jobs will continue to hold back on spending, which in turn will hurt businesses who will be forced to lay off more staff.

EY estimates consumer spending will have contracted by 17 per cent between April and June and 8.7 per cent over the whole year before recovering by 5 per cent next year.

Some analysts were a little more optimistic. Yael Selfin, chief economist at KPMG ,said that April was the bottom of the crisis.

“As restrictions were gradually eased from May, the sharp contraction in activity in April should be followed by a very gradual improvement over the rest of the year,” Ms Selfin said.

“Hospitality was particularly badly hit, and is expected to remain under significant pressure due to continued social distancing measures and people’s reluctance to resume non-essential spending.

“Automotive manufacturing was another sector to be acutely affected as all production was halted in April – any sales relied on existing inventories and total industry output fell by over 90 per cent. Overall transport manufacturing was down 50 per cent, easily becoming the worst month on record. Pharmaceuticals was the only production sector to see some growth, as it expanded by 4.7 per cent.”

Looking towards the recovery, the government has an extremely difficult task on its hands to prevent a deep recession turning into long-lasting damage to the economy.

“The journey to recovery will not be easy,“ said Robert Alster, head of investment services at Close Brothers Asset Management.

“The OECD has expressed serious concerns about Britain’s ability to bounce back from the economic hit, worsened still by the ongoing Brexit negotiations which will come to a head at the end of the year.

Tim Montgomerie, a former adviser to Boris Johnson tweeted: “I am very frightened about what this will mean for millions of people. Huge creativity in public policy is going to be required.”