Aug. 14, 2020, 9:14 a.m. EDT

Brace for more stimulus from Johnson and the Bank of England, as U.K economy falls into recession

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By Pierre Briançon


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As it considers the possibility of a second spike of the new coronavirus, Prime Minister Boris Johnson’s government will have to postpone plans to put public finances back in order.

The U.K. economy contracted by 20.4% in the three months ended in June, the worst performance among European major economies, and the sharpest fall of the G-7 group of the world’s biggest industrial powers.

- All sectors of the economy were affected by the downturn, with construction down 35% and the accommodation and restaurant business down, slumping by nearly 87%, the Office for National Statistics said on Wednesday.

- The slump in the second quarter officially plunged the U.K. into recession after output in the first quarter of the year fell 2.2%. That is despite a gross domestic product rise in June, up 8.7% due to the easing of the most drastic restriction measures taken to fight the coronavirus outbreak.

- The ONS noted that in the first half of the year, only the Spanish economy sank faster than the U.K.’s, with GDP down 22.7%, versus 22.1% for the U.K., 18.9% for France, 17.1% for Italy and 11.9% for Germany.

The outlook : Data released on Tuesday also showed that 730,000 jobs were cut from U.K. employers’ payrolls since March, an early sign of the massive rise in unemployment levels expected by the end of the year. Brace for more stimulus, both fiscal and monetary, in the next few months. As it considers the possibility of a second spike of the new coronavirus, the government will have to postpone plans to put public finances back in order. And the Bank of England may have to, once again, increase its bond-buying program, and toy with the idea of negative interest rates.

Pierre Briançon is a senior writer at Barron's Group. He has written for Politico, Reuters Breakingviews, Le Monde and Libération.

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