What was expected became official, the UK saw the biggest drop in GDP in Q2 on record, plunging a massive 20.4%. Given the extent of the lockdown and the measures put in place to curb the spread of COVID-19 this will have come as no surprise, considering the UK relies massively on the service sector.

But, if you work in the UK fenestration industry, you probably haven’t noticed the worst recession on record. Since returning to work in mid-May, our industry has been on the front foot, dealing with the mass of work put on hold as we entered lockdown, and the resulting wave of pent up demand during lockdown that built up and is now being released into the market. Construction is building back, DIY sales are up and my landscaper can’t come and work on my garden until February!

In our own little bubble of windows and doors, we haven’t felt the effects of the recession, but that doesn’t mean its not here. So, when is a recession not a recession?

Context

Before I try and explore this issue, here is some all-important context from the ONS about the current landscape of the UK economy:

This is what happened to the UK economy up to June:

This is the analysis from the ONS on Q2 GDP and the upward moves seen after:

Commenting on today’s GDP and productivity figures for June and the second quarter, ONS Deputy National Statistical for Economic Statistics Jonathan Athow said:

“The recession brought on by the coronavirus pandemic has led to the biggest fall in quarterly GDP on record.

“The economy began to bounce back in June with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover. Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.

“Overall, productivity saw its largest ever fall in the second quarter. Hospitality was worst hit, with productivity in that industry falling by three quarters in recent months.”

Recent analysis explains our latest position on how we are looking to communicate GDP, including how we will continue to acknowledge that “technical” recessions are comprising of at least two consecutive quarters of contracting GDP.

While it is still true that these early estimates are prone to revision, we prefer to focus on the magnitude of the contraction that has taken place in response to the coronavirus (COVID-19) pandemic. It is clear that the UK is in the largest recession on record. Our latest estimates show that the UK economy is now 17.2% smaller than it was in February, the effects of which have been most pronounced in those industries that are most exposed to public health restrictions and the effects of social distancing.

The ONS also provides this chart, showing the recovery starting:

One observation I will make is that this might be the quickest but also the deepest recession on record. Technically, a recession is two quarters or more in a row of contraction. The moment that run is broken the recession is technically over. This is what will happen here. An incredible drop, and then the inevitable bounce as the economy reopens. So whilst some will proclaim in October that the recession is over, on a technical level they will be right, but the reality for millions of families up and down the UK won’t reflect that. Indeed, the BBC reported a few weeks ago that an EY Club analysis showed that the UK economy might be back to pre-COVID levels until 2024.

This is an important context. There are going to be wild monthly and quarterly GDP swings as we go through this crisis. But the reality felt by people in their pockets is going to be perhaps a more accurate measure of how the recovery is actually going. Even with June GDP bounce, the UK economy is still over 17% smaller than it was in February. Unfortunately, no matter how busy the window industry is, its going to take a huge national effort to bring things back to where we were.

For every sector…

The past ten weeks or so have been great for UK fenestration. Installers have been able to restore order books and many are now looking at schedules filling up towards the festive period. Though the industry does now seem quite stretched as demand appears to be outstripping supply of some products and communication and service lines are breaking down. I speak to some privately who cannot wait for a slowdown to come just so they can get back to more sustainable and less stressful levels of business!

But whilst fenestration booms, there are other sectors around the UK which are doing the complete opposite and we have to be empathetic to that. You only need to look at the growing list of major UK retailers that are announcing job cuts by the thousands every week. At the time of writing this, M&S announced an additional 7000 jobs would go, and at the weekend it was revealed that Debenhams are drawing up plans to go into liquidation should a buyer for the business not be found. That would result in 14,000 jobs lost should that come to pass. The entire service sector is under extreme pressure right now. As it makes up 70% of the British economy, this is the key cog that needs to start firing on all cylinders again and as quickly as possible. High street retailers are reporting significantly lower sales in stores despite shops being allowed to open for some time now. If the Government wants to stop this wave of job losses becoming worse in this part of the economy they are going to have to come up with a major support package and very quickly.

What we’re seeing here is a “K” shaped recovery. For me, the rise of the “V” will taper off. A K is a more accurate description. Where some sectors are back up and running are doing well, and others are sinking just as quickly. If we were hoping to bridge some of the inequalities both in society and the economy, this isn’t going to help matters. For fenestration, we’re on that upward leg of the K, for sectors like retail, the downward. For every sector that is doing well, there is another doing the opposite.

The big reveal

There is a pivotal moment approaching for the UK and it’s economy and that is the ending of the furlough scheme. The Chancellor has repeated that it will come to an end on Halloween and there will be no continuation of the scheme. As of August 1st companies participating in the Jobs Retention Scheme have begun to contribute costs towards the scheme on a sliding scale that will rise in September and top out at 20% of the cost of furlough by October.

This support mechanism has been one of the most successful in terms of keeping people in work, even on a temporary basis, and preventing an immediate inundation of unemployment right back at the start of the crisis. According to Statista, as of August 2nd there were 9.6m workers on furlough from 1.2m employers. By the end of October the scheme is estimated to cost the Government £80bn. Perhaps no surprise then that they want it wound down. But the Government has been warned that if they press on and close it down that millions will lose their jobs almost immediately and the UK will see unemployment shoot up to near-record levels.

It is furlough that is perhaps one of the biggest masks hiding the true extent of the damage done to the economy. Many millions are in this bubble of protection. It’s one of the reasons why for many the worst recession on record doesn’t actually feel like it is. At least not yet.

If you want to start guessing what the level of unemployment might be, we can make a rough guess. There were roughly 1.3m unemployed prior to the pandemic. There have been an estimated 700,000+ jobs lost since April to July. Bloomberg then carried a report not too long ago that a quarter of those on furlough will lose their jobs by September. A quarter of 9.6m is 2.4m. Add all that up, and if estimates are roughly accurate that would equate to 4.4m out of work before the end of the year. For context, 2.5m were out of work at the height of the depression in the 1930’s in the UK. But the working population was a lot smaller back then, so adjustments need to be made if you’re going to compare then with now.

So, a lot to take in there, and we haven’t even discussed Brexit yet! As an industry, what can we do about it? What should we focus on? Right now, I would say keep doing what we’re doing. Homeowners seem happy to continue to invest in their homes. Spending months indoors looking at what you’re not happy with is an amazing motivator. Keep looking at new ways to reach out to potential customers in both B2B and B2C spheres. Keep putting in the hours now and make the most of the bubble we’re operating in. It may not last for too long a period so the profits made right now are incredibly important. Be empathetic to those not working or those working in sectors which are struggling. Not every story is the same, and even in our industry Linkedin has been rather full the last few weeks of people posting they have been let go by fenestration companies.

As a sector, if we can keep the momentum up, perhaps we can be a bit of a beacon in the months to come for those looking for employment who have come from other parts of the economy. We continue to need fresh talent and more workers. We can reach out to others and provide opportunities for those who have been hit hard by the pandemic.

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