There comes a time where a recession can become a depression. Thankfully this hasn’t happened often enough for a precise marker to have been developed to transit a change in classification. But a recession that goes on several years doubtless would come to be called a depression. Britain, like many other countries, is now officially in recession. The marker for that much is clear: the economy shrank a second successive quarter.
But markers of a change come on the street too, that can sometimes be more telling—and more chilling—than more established nomenclature to follow. Britain now looks enveloped by what’s beginning to look like a depressing recession. Because this recession is turning out to be a lot more depressing in homes and on the street—and on the high street particularly—than the 2008 recession.
The 2008 recession lasted just above a year, five quarters. But it took six years for the job level to recover. In some respects, the GDP drop continued longer than through the Great Depression of the 1930s. But the peak of that recession and its long shadow still didn’t hit homes and businesses as hard as this one has begun to.
Businesses are closing down every day, with more and more job losses announced. Britain is shrinking more than other economies around Europe; its economy has shrunk twice the rate of the US hit by its own biting recession. The British economy has been driven by, and is therefore now more exposed to, consumer spending. Clothes, cars, tourism, hospitality, leisure, services associated with consumer choices have moved the pound around. Spending on all of this has tightened. Worse is expected.
A number of restaurants have been looking busier than most shops under the blessing of an unusual move to beat the recession. A government Eat Out to Help Out scheme pays half of anyone’s bill at participating restaurants from Monday to Wednesday until the end of August, up to 10 pounds per person per meal. So a 20-pound meal would cost half that. You can go as often as you like. Chancellor Rishi Sunak played waiter at a restaurant to encourage diners to take up the scheme.
The offer has found many takers, and the government is now waiting to see how far that offer can extend itself into a spending habit from September. Away from the distanced clientele at these restaurants over what has come to be called the new weekend, it’s all too quiet. Shuttered shops, vacant offices, near-empty trains and buses.
The statistics of this recession stare you in the face at every corner. The shrinkage looks far more dramatic than anything the 2008 recession threw up. Buzzing Central London silenced into a ghost city through the lockdown; that was seen as a reassuring expression of discipline. What worries now is that it hasn’t got that much busier after the easing of the lockdown. Some shops have been opening but not enough people have been entering, let alone buying. Online sales have compensated for some businesses, Amazon is thriving as never before, but the losses of most will outweigh Amazon’s gains.
The easing of the lockdown has nevertheless brought some limited improvement; how much will show in the third-quarter results. But it’s doubtful the recovery will be strong enough to lift the UK out of recession any time soon. Much of the limited spending seen has been fed by the government’s furlough scheme under which it has been paying a substantial portion of wages to just about everyone on behalf of employers, and also a portion of typical earnings to the self-employed. At the end of October, all that ends. Demands are rising to extend that scheme beyond October, but there’s a limit on how much money the government can borrow—or print.
Past October too it will be time to prepare for Brexit—and winter. The spread of COVID is now much reduced in Britain, but it has risen marginally higher than the low levels it found in June. Lockdown is being confined now to clusters of the outbreak, but these clusters have begun to surface in hundreds now. This is feeding fears of a resurgence of the virus rather than of the economy—and fear can be enough to restrict an economic rebound. Many epidemiologists have been warning that winter could bring a wider outbreak of the virus.
Add to this Britain’s failing talks over a Brexit trade deal with the EU. The Brexit break with the EU is due mid-winter at the end of the year. That could mean that the UK may have to begin to trade with the EU on WTO terms—with all the tariffs and duties that comes. Britain could face a bleak winter ahead.
—London Eye is a weekly column by CNBC-TV18’s Sanjay Suri, which gives a peek at business-as-unusual from London and around.
Read his columns here.