Job losses, GDP collapse, and soaring debt: How COVID-19 ravaged the UK economy

·Senior City Correspondent, Yahoo Finance UK
·14 min read
A man walks past a Stay Alert Save lives Rainbow sign in Soho, London, during the second lockdown in England in November. Photo: Pietro Recchia/SOPA Images/Sipa USA
A man walks past a Stay Alert Save lives Rainbow sign in Soho, London, during the second lockdown in England in November. Photo: Pietro Recchia/SOPA Images/Sipa USA

COVID-19 has been an economic crisis as well as a health one.

The UK economy has been ravaged by the pandemic this year — GDP has fallen by historic amounts, unemployment has soared, and government debt has reached its highest point in post-war history. Companies have been forced into painful restructurings and entire industries have faced unprecedented disruption.

The initial economic hit was historic in speed and scale, quickly outpacing the impact of the global financial crisis.

However, the outlook has continued to worsen as the year went on. Barring a brief upswing over summer, economic data and forecasts have been almost relentlessly negative.

Here’s a timeline of how the economic crisis unfolded across 2020:

March 11: ‘Significant’ but ‘temporary’ impact

The government was still resisting calls to lock the country down in early March when chancellor Rishi Sunak delivered his first budget. Sunak promised £30bn ($40bn) to fight the virus, saying its impact would be “significant” but “temporary.”

The Office for Budget Responsibility (OBR), the government’s official spending watchdog, published economic forecasts alongside the budget. The projections were made prior to the onset of the virus and suggested growth of 1.1% in 2020. The OBR said the forecast was now “highly uncertain” because of the pandemic.

March 17: Laura Ashley collapses, blaming COVID-19

The first major sign of the impact of COVID-19 on businesses came when Laura Ashley fell into administration. The clothing and homeware chain had been weak but was finished off by the looming onset of the pandemic.

“The COVID-19 outbreak has had an immediate and significant impact on trading,” management said. “Ongoing developments indicate that this will be a sustained national situation.”

April 6: IMF predicts historic fall in UK GDP

Just two weeks after the budget, the government relented and announced a strict national lockdown. All non-essential businesses were closed, including schools and universities. The government said the measures would be reviewed every three weeks.

The International Monetary Fund (IMF) published its quarterly world economic outlook report shortly after Britain’s lockdown began. The IMF warned the impact of the pandemic would be “much worse than during the 2008–09 financial crisis,” predicting a 3% decline in global GDP.

Britain's chancellor of the exchequer Rishi Sunak during a coronavirus briefing, in Downing Street, London. Photo: Henry Nicholls/Pool via AP
Britain's chancellor of the exchequer Rishi Sunak during a coronavirus briefing, in Downing Street, London. Photo: Henry Nicholls/Pool via AP

The IMF warned the UK economy could shrink by 6.5% in 2020 — worse than the outlook for the US, Japan, and Canada but better than the eurozone.

Such a fall would mark the worst annual performance for Britain since 1921 when the country was in the depths of a recession brought on by the first world war.

April 9: Fears economy could shrink by a quarter

Two weeks into the shutdown, the National Institute of Economic and Social Research (NIESR) predicted UK GDP could shrink by as much as a quarter if restrictions remained in place until June.

“The UK economy is now almost certain to experience a major contraction in the second quarter of the year,” Kemar Whyte, a senior economist of macroeconomic modelling and forecasting at NIESR, said at the time.

“The forceful impact of COVID-19 and the global lockdown has thrust the economy into unknown territory where we could see GDP declining at a record quarterly rate.”

Official data published on the same day showed UK growth was anaemic even before lockdown began.

A week later and the OBR updated its models. The watchdog said it was not unfeasible that the UK economy could shrink by as much as 35% in the second quarter of 2020. Activity should bounce back quickly once restrictions are lifted, it said.

WATCH: What is budget deficit and why does it matter?

April 28: British Airways to lay off 12,000 workers

The pandemic crushed the global travel industry and among the worst hit were airlines. British Airways (IAG.L) announced a sweeping redundancy programme in April, warning one in four staff members could lose their jobs. Rivals including Ryanair (RYA.L) and Easyjet (EZJ.L) announced job cuts on a similar scale.

Later in the year, travel agent Tui (TUI.L) said as many as 8,000 jobs could go and Heathrow said up to a 25,000 people could be let go as traffic plummeted.

May 1: UK suffers worst slump since 2009

Data from the Office of National Statistics (ONS) showed the UK economy shrank by 1.6% between January and March. While it might not sound like a lot, it marked the biggest fall in quarterly GDP since 2009 when the UK was reeling from the global financial crisis.

Worryingly, the quarter only included just one week of lockdown, suggesting the second quarter would be far worse.

“With the arrival of the pandemic nearly every aspect of the economy was hit in March, dragging growth to a record monthly fall,” Jonathan Athow, deputy national statistician for economic statistics at the ONS, said at the time.

May 7: Bank of England warns downturn could be worst in 300 years

The Bank of England warned UK GDP could fall by as much as 14% in 2020 — its worst annual performance since 1706. The Bank of England said GDP should pick up relatively quickly once restrictions are lifted.

Two months later the OBR joined the Bank of England in predicting the worst annual downturn in three centuries. The budget watchdog said UK GDP could fall by 12.4% in 2020 in a report published alongside the chancellor’s summer statement.

Closed shops in East Ham, east London. Photo: PA
Closed shops in East Ham, east London. Photo: PA

May 20: Rolls-Royce to cut 9,000 jobs

As travel ground to a halt around the world, Rolls-Royce (RR.L) saw demand for its jet engines collapse. The manufacturing giant was forced into a huge restructuring and said it would have to cut 9,000 jobs. The crisis ultimately forced the company to launch an emergency £5bn fundraising to shore up its balance sheet.

Aerospace giants Boeing (BA) and Airbus (AIR.PA) later announced tens of thousands of job cuts of their own.

June 8: BP to cut 10,000 job

A lack of travel led to plummeting oil prices globally — futures in fact went into negative price territory for the first time in history in late April, meaning traders were literally paying people to take oil off their hands.

Collapsing prices put huge pressure on energy companies. BP (BP.L) announced plans to cut 10,000 jobs jobs in early June, while British Gas-owner Centrica followed with plans to lay off 5,000 staff just days later. Shell (RDSB.L) announced plans to make up to 9,000 staff redundant in September.

WATCH: UK job losses hit decade high

June 12: Biggest ever slump in monthly GDP

Estimates from the ONS showed the UK economy had shrunk by 10.4% in the three months to April, starkly laying out lockdown’s impact.

“April’s fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost ten times larger than the steepest pre-covid-19 fall,” the ONS’s Athow said at the time. “In April the economy was around 25% smaller than in February.”

June 24: IMF downgrades growth forecasts

With the impact of lockdown becoming clearer, the IMF downgraded its forecasts. The international bank said it now expected Britain’s economy to shrink by 10.2% in 2020 — worse than most advanced economies and in-line with expectations for the eurozone.

The IMF also downgraded its forecast for the global economy, saying it was now likely to shrink by 4.9%. The crisis risked eradicating 30 years of work fighting poverty, the IMF said.

July 1: Upper Crust-owner cuts 5,000 jobs

SSP (SSPG.L), the company behind fast food outlets in train stations across the UK, joined the growing list of companies making huge cuts to their workforce. SSP, which owns Upper Crust and Caffè Ritazza among others, said 5,000 of its 39,000 staff worldwide faced redundancy.

A Upper Crust in Waterloo Station, Londo. Photo: Aaron Chown/PA via Getty Images
A Upper Crust in Waterloo Station, Londo. Photo: Aaron Chown/PA via Getty Images

July 10: UK downturn ‘worst in G20’

Ratings agency Moody’s said the UK was now on track for the worst downturn of any of G20 developed nation. The agency forecasted a downturn of 10.1%, roughly in line with the IMF’s prediction.

July 16: 650,000 jobs lost since pandemic began

Despite a huge package of support for jobs, businesses were forced to lay off staff during lockdown. The scale of the unemployment crisis began to hit home over summer. Data from the ONS showed 650,000 jobs had disappeared from Britain’s payroll between March and June.

The UK banking sector sounded the alarm on corporate debt levels on the same day job figures were published. The government set up a programme of cheap, state-backed loans when COVID-19 first struck to help support businesses through the crisis. By mid-July, businesses had borrowed £46bn. A cross-industry group from the finance sector warned up to £35bn of these loans could prove unsustainable, suggesting the UK faced a corporate debt crisis after the pandemic ended.

By the end of the year, the total borrowed by businesses under state-backed schemes had topped £65bn.

WATCH: Bank of England warns long-term impact of Brexit worst than COVID pandemic

August 6: Bank of England upgrades forecasts — to worst slump in a century

The Bank of England upgraded its forecasts in August but they remained dire. The central bank said the economy was likely to shrink by 9.5% in 2020, which would still mark the worst performance in 100 years.

August 12: Economy shrinks by a fifth in just three months

The full impact of months of lockdown was laid bare in mid-August when official data showed the UK economy shrank by 20.4% in the second quarter of 2020. The figure was later revised down slightly but remained a fall of around a fifth.

“It is clear that the UK is in the largest recession on record,” the ONS said.

The data confirmed the UK suffered a deeper slump than other developed nations. The one bright spot was news that a recovery was already underway — GDP grew by 8.7% in the month of June.

August 18: Marks & Spencer to lay off 7,000 workers

A crisis was engulfing the high street by mid-August. Restaurants and shops that had relied on a steady stream of commuters were in trouble.

Marks & Spencer (MKS.L), which months earlier had announced a transformation plan dubbed “Never The Same Again,” said it would have to cut 7,000 jobs. The iconic retailer later reported its first loss in over 100 years.

By this time Boots had already announced plans to cut thousands of jobs. In the coming weeks the likes of Pret A Manger and Costa followed M&S in announcing thousands of redundancies.

A Marks and Spencer store in Shrewsbury, England. Photo: Nick Potts/PA via AP
A Marks and Spencer store in Shrewsbury, England. Photo: Nick Potts/PA via AP

August 21: UK debt hits £2tn

At the start of lockdown the government pledged to do whatever it took to prop up the UK economy during the crisis. This translated to billions of pounds spent supporting jobs and businesses. The state also pumped billions into the NHS to help it cope with the crisis.

The result was that, by August, the national debt had soared to more than £2tn from the first time in the post-war era. Public debt now exceeded the size of the UK economy.

September 16: OECD upgrades forecasts

Things looked like they may have turned a corner by late summer. The economy was almost fully unlocked and, through incentives like Eat Out to Help Out, city centres were starting to get back to normal. Economic forecasts stopped worsening in September and OECD upgraded its forecast for the UK ever so slightly. The agency said it now expected UK GDP to fall by 10.1% in 2020, compared to its June forecast of an 11.5% slump.

October 9: Economic recovery loses momentum

Hopes of a rebound were soon quashed after GDP figures for August dramatically undershot forecasts. Economic output expanded by just 2.1% that month, compared to forecasts of 4.6%. Data published a month later shows output grew by just 1.1% in September, which was again worse than expected.

New daily COVID-19 cases were starting to rise again by this point and the government had begun to reintroduce curbs on every day life to halt the spread. A 10pm curfew was introduced in late September. The hospitality industry complained it was doing huge damage to the sector.

October 13: UK unemployment hits 1.5m

Unemployment hit 1.5m in October, rising more than expected and taking the official unemployment rate to 4.5%. Redundancies jumped by a record number to hit the highest level since the financial crisis.

EMBARGOED TO 0001 MONDAY NOVEMBER 23 File photo dated 17/02/16 of a Job Centre Plus in London. The number of people over the age of 50 who are unemployed has increased by a third over the past year, new research suggests.
A job centre plus in London. Photo: PA

October 29: IMF cuts forecast

In early October, the IMF upgraded its forecast for Britain, predicting a decline of 9.8%. But just weeks later the agency downgraded the outlook as data pointed to a slowing economy and a second wave of COVID-19 became clearer. The IMF predicted a 10.4% annual slump — worse than what it had foreseen in June.

November 5: Bank of England predicts 11% economic contraction

The Bank of England’s summer prediction had been out of step with most major international agencies. By November, it was out-of-step in its expectation of a less severe slump and a quick rebound. The central bank reassessed its outlook and decided it was being too optimistic. Threadneedle Street said the economy now looked likely to shrink by 11% in 2020 and was unlikely to recover to until 2022.

The prediction came days after a second national lockdown began in England to curb the COVID-19 second wave. Tougher restrictions were in place across much of the UK.

November 12: UK economy still far off pre-pandemic levels despite rebound

The economy grew by 15.5% in the third quarter — a record rebound after the lockdown earlier in the year.

However,the third quarter data showed the UK economy also remained over 8% below pre-pandemic levels — meaning the downturn was still bigger than the worst point of the financial crisis even after the rebound.

Britain's prime minister Boris Johnson and chancellor Rishi Sunak load a delivery van with baskets of shopping during a visit to a distribution centre in London, on 11 November. Photo: Kirsty Wigglesworth/AP
Britain's prime minister Boris Johnson and chancellor Rishi Sunak load a delivery van with baskets of shopping during a visit to a distribution centre in London, on 11 November. Photo: Kirsty Wigglesworth/AP

November 23: UK facing ‘double dip’ downturn

Closely watched private sector data suggested the economy was once again shrinking after months of recovery. IHS Markit’s purchasing managers’ index turned negative in November. The data company warned the UK was facing a “double dip” downturn.

November 25: Chancellor declares ‘economic emergency’

The chancellor delivered a 12-month spending review, using the occasion like a mini-budget. Rishi Sunak declared an “economic emergency” brought on by the pandemic. The OBR released updated forecasts alongside the spending review showing the UK economy was on track to shrink by 11.3% in 2020 — slightly better than earlier forecasts. However, the OBR warned the recovery would take longer than it first thought.

November 30: Arcadia collapse puts 25,000 jobs on the line

Arcadia, which owned retailers like TopShop and Miss Selfridge, collapsed into administration. The company blamed COVID-19 for its demise. Arcadia’s 13,000 employees face losing their jobs unless a buyer can be found. Experts warned job losses are likely whatever happens.

Arcadia’s collapse also brought down Debenhams. The department store had entered administration in April and had been trying to find a buyer. Talks with JD Sports (JD.L) fell through a day after Arcadia’s demise. Arcadia had a number of concessions within Debenhams’ stores and generated around 5% of its revenue. Uncertainty around Arcadia’s future put off JD.

Debenhams’ administrators said their only option was to wind up the department store, selling off all its remaining stock before closing the business for good. 12,000 Debenhams staff face losing their jobs.

Topshop's flagship store on Oxford Street in London. Photo: KGC-254/Star Max/IPx/Getty
Topshop's flagship store on Oxford Street in London. Photo: KGC-254/Star Max/IPx/Getty

December 1: OECD says UK facing steeper fall and slower recovery

Britain’s status as the worst-hit economically had been established but economists warned the UK is also likely to suffer the slowest recovery too. The OECD joined the OBR is predicting a slow recovery and said Britain would take the longer than most other developed nations to reach pre-pandemic levels.

December 15: Redundancies hit record high

Redundancies reached an all-time high of 370,000, the ONS said, as employers axed jobs in the run-up to the planned withdrawal of furlough support at the end of October. The official unemployment rate rises to 4.9%, with 2.7 million people now claiming unemployment or low pay related benefits.

WATCH: The fall of Debenhams