U.K. Tips Closer to Recession as Virus Slashes Growth Outlook

(Bloomberg) --

The coronavirus pandemic is pushing the U.K. economy toward its first recession since the global financial crisis.

Economists in Bloomberg’s monthly survey see gross domestic product expanding 0.5% this year, down from 1% seen in February. Yet even that projection may be optimistic as the disease continues to spread and the government steps up measures in response.

While the U.K. hasn’t gone as tough as some countries, Prime Minister Boris Johnson on Monday urged people to stop all non-essential travel and avoid pubs and theaters. The economy will probably contract in the second quarter, according to the survey.

A number of economists see two quarterly contractions this year, putting the country in a recession.

Robert Chote, who chairs the U.K.’s fiscal watchdog, the Office for Budget Responsibility, warned lawmakers Tuesday that “the economy is probably shrinking as we speak.”

The government and the Bank of England have announced a series of measures to cushion the blow. The central bank cut interest rates by 50 basis points in an emergency meeting last week, shortly before the Treasury unveiled a stimulus package to help health services and companies struggling with the crisis.

The BOE, under new Governor Andrew Bailey, may not be done yet. In his first remarks after taking over from Mark Carney on Monday, Bailey said he’ll take further prompt action if needed to protect the economy.

As all European countries intensify efforts to stop the virus, with national emergencies and shutdowns, there’s a risk of a severe recession across the continent. The European Commission says Europe’s economy could shrink 1% this year, the most in a decade.

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