Britain’s economy shrank by a fifth in the last quarter, much worse than the US or the eurozone
- What the economists say
- Rishi Sunak says ‘hard times’ are here
- Newsflash: UK economy shrank 20.4% in Q2
- Worst slump on record…and worse than other countries
- But GDP did rise 8.7% in June
- Full story: Worst slump since records began
Professor Costas Milas of the University of Liverpool reckons the UK’s recovery will resemble a ‘Nike Swoosh’, rather than a perkier V-shape which some have predicted.
He tells us:
Today’s GDP quarter-on-quarter drop of 20.4% is slightly better than the 20.7% estimate of the Bank of England.
In reality, today’s data point to a very slow type of recovery which, in my view, resembles a ‘Nike swoosh’ type of recovery rather than the most optimistic V-type one. As can be seen here:
UK GDP was 17% below its pre-pandemic level in June 2020.
UK GDP follows quite closely Google mobility data (a good proxy for the expenditure of consumers). These data, even in August 2020, confirm that expenditure is lagging behind its pre-pandemic level quite substantially. Not good news on how UK GDP will evolve in the third quarter of 2020…
Reuters’ David Milliken has dug into the GDP report, and spotted that UK car production was particularly weak in Q2 while pharmaceuticals surged:
Big variations within the manufacturing sector too. The headline-grabbing collapse in car production has been much worse than for other types of manufacturer, and – perhaps unsurprisingly – pharmaceuticals production has expanded. pic.twitter.com/Nd7L7kZmZO
More here from the ONS showing how it’s a very different downturn for different parts of the services sector. Hospitality hammered by the lockdown – but also worth seeing the rapid (but partial) recovery in retail as lockdown eased in June. pic.twitter.com/V0Mpjq4FRy
Today’s GDP figures haven’t rattled the City.
The FTSE 100 index of top blue-chip shares has risen by around 0.5%, or 30 points, this morning to 6184, which is nearly a three-week high.
Contracting 20.4% from April to June, the UK’s Q2 performance makes it far and away the worst hit country among its G7 peers. It’s not even close. That decline is more than double the hit taken by Germany and the US, and 6.6 percent points higher than the next nation (France, which suffered a 13.8% drop).
It is further economic evidence of the bungling nature of Boris Johnson and his government’s approach to the covid-19 pandemic, one that has cost more lives and jobs than any other nation in Europe. And that’s in a country that doesn’t have to worry about physical borders.
Tom Stevenson, investment director at Fidelity International, warns that the UK faces a ‘slow crawl’ back to recovery from the worst recession ever.
“Today’s figures confirm that the UK is enduring the worst recession on record. The economy is more than a fifth smaller than it was at the start of the year and is smaller than it was at the low point after the financial crisis. Despite an encouraging pick-up in activity in June as lockdown ended, the record 20% fall in output in April ensured that the UK has followed our eurozone neighbours and the US into an historic economic slump.
“The scale of the contraction compared with comparable countries is a concern, although it does reflect the length of time during the quarter that the UK was in lockdown. Expectations from the Bank of England that the economic fallout from the pandemic would be short-lived, or V-shaped, are borne out by the sharp fall and rapid partial recovery but UK GDP has seen the biggest quarterly drop of any G7 economy.
GDP numbers for June show a strong bounce in activity as the economy emerged from lockdown.
We expect pent-up consumer demand to drive a strong recovery in the third quarter, although this momentum will gradually fade as the outlook for the labour market deteriorates. The UK economy is unlikely to return to its pre-crisis level before the end of next year.
Economist @lindayueh tells Sky News that even if expected, “it is still a shock to see the scale of the decline in GDP national output across all of the sectors”, as the UK enters recession.
Construction output fell 35.0% in Quarter 2.
Comparisons to previous recessions are not particularly illuminating.
Firstly, the 20.4% contraction in Q2 was caused by active shuttering of the economy which has since been reversed – hence we are likely to see a faster recovery of much of that activity than in, say, 2009. The 8.7% monthly jump in June supports this.
The UK chancellor, Rishi Sunak, has warned that the UK faces ‘difficult choices’ after plunging so deeply into recession:
“I’ve said before that hard times were ahead, and today’s figures confirm that hard times are here. Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.
“But while there are difficult choices to be made ahead, we will get through this, and I can assure people that nobody will be left without hope or opportunity.”
Here’s Jonathan Athow, deputy national statistician at the ONS, on Britain’s slide into recession:
“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 house-building continuing to recover.
This heatmap from Bloomberg shows how the UK fared particularly badly last quarter:
Here’s our economics correspondent Richard Partington on today’s GDP figures:
After a decline of 2.2% in the first quarter, the figures confirm the UK economy plunged into recession after the outbreak spread in March and the government imposed a nationwide lockdown to contain it. Economists consider two consecutive quarters of shrinking GDP as the technical definition of a recession.
However, monthly figures for the economy indicate that Britain’s economy continued to recover from the pandemic in June as lockdown measures were gradually relaxed and pent-up demand fuelled a rise in consumer spending. GDP grew by 8.7% on the month – faster than expected by City economists.
Economist Keith Church points out that restaurants, bars and hotels drove the recovery in June:
GDP rose 8.7% in June. Big rise in accommodation and food services from a very low base. pic.twitter.com/umDWPZvsBc
We now know that Britain’s economy has suffered a much worse slump than other countries.
The 20.4% plunge in GDP in April-June is twice as bad as Germany and the US, and also more severe than any other G7 nation.
Drop in GDP, Apr-Jun 2020
We’ve already got the worst excess death rate in Europe. Now we’re on course for the worst recession too.
A downturn was inevitable after lockdown – Johnson’s jobs crisis wasn’t.
Q2 GDP data confirm the U.K. is the Sick Man of Europe. GDP down 20.4% q/q.
The U.K. government’s failure to lockdown early and then to stamp out Covid-19 quickly ranks as one of the biggest macroeconomic policy blunders in modern times. We’ve all paid a hefty price. pic.twitter.com/577CxxD7p2
Every sector of the UK economy had an utterly torrid quarter.
Services companies, production firms and builders all suffered record quarterly falls in GDP in the April-June quarter, as the country fell into recession.
So far this year, the UK economy has shrunk by over 22% (an astonishing drop, and not a sentence anyone expected to read back on January 1st).
That means Britain has suffered one of the steepest slumps, compared to other advanced economies. And that’s because it has imposed lockdown measures for longer than many rivals.
Compared with the end of 2019, the UK fell by a cumulative 22.1% in the first six months of 2020. This fall was slightly below the 22.7% seen in Spain but was more than double the 10.6% fall in United States GDP over this period.
The larger contraction of the UK economy primarily reflects how lockdown measures have been in place for a larger part of this period in the UK compared with these other economies.
In better news, the UK economy did grow in June.
The ONS reports that monthly gross domestic product (GDP) expanded by 8.7% in June 2020, following growth of 2.4% in May 2020 (that’s been revised up from 1.8%, I think).
But despite this, the level of output did not fully recover from the record falls seen across March and April 2020, and has reduced by 17.2% compared with February 2020, before the full impact of the coronavirus (COVID-19) pandemic.
The contraction in Britain’s economy this year is much, much worse than the last recession, as this chart shows:
The slump in April-June is officially the worst quarter ever, and wipes out around 17 years of growth.
The Office for National Statistics says:
UK gross domestic product (GDP) is estimated to have fallen by a record 20.4% in Quarter 2 (Apr to June) 2020, marking the second consecutive quarterly decline after GDP fell by 2.2% in the previous quarter.
This is the largest quarterly contraction in the UK economy since Office for National Statistics (ONS) quarterly records began in 1955, and reflects the ongoing public health restrictions and forms of voluntary social distancing that have been put in place in response to the coronavirus (COVID-19) pandemic. In level terms, real GDP was last lower in Quarter 2 2003. Compared with the same quarter a year ago, the UK economy fell by 21.7%.
Newsflash: The UK economy contracted by 20.4% in the second quarter of 2020, as the Covid-19 lockdown pushed the country into an unprecedented slump.
That puts the UK into recession for the first time since the financial crisis, and follows a 2.2% drop in GDP in January-March.
The ONS says:
UK gross domestic product (GDP) is estimated to have fallen by a record 20.4% in Quarter 2 (Apr to June) 2020, marking the second consecutive quarterly decline after it fell by 2.2% in Quarter 1 (Jan to Mar) 2020.
There have been record quarterly falls in services, production and construction output in Quarter 2, which have been particularly prevalent in those industries that have been most exposed to government restrictions.
Not long to go….
The country’s worst kept secret will be confirmed at 7am when the ONS publish latest UK GDP numbers. There’s no doubt we’re in recession, but just how deep was that Q2 contraction. Consensus is for around -21%.
Good morning from the city of London… set to be another sizzler as we wait for the latest UK GDP numbers to show the country is officially in recession . pic.twitter.com/SNKCfqhKpf
There’s an “an awful lot of pessimism” about just how bad today’s UK GDP figures will be, says Michael Hewson of CMC Markets:
In Europe a couple of weeks ago we saw eye watering drops in output in the latest Q2 GDP numbers, from the likes of Spain, where we saw a Q2 drop in output of -18.5% to Germany which saw a more modest -10.1% drop, while the US saw a -9% fall in output.
Today’s UK numbers are expected to be no less sobering, with estimates from anywhere between -15% to -25% for Q2, a big drop from the -2.2% contraction seen in Q1.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We’re about to discover quite how badly the UK economy fared during the Covid-19 lockdown, and whether it is on the road to recovery. The latest GDP report, due at 7am, is expected to show that activity slumped dramatically in April-June, plunging the UK into a technical recession. The slump is expected to be deeper than in many other advanced economies. Economists predict that GDP contracted by around 21% in the second quarter, following a 2.2% fall in Q1. That would be the deepest quarterly slump on record, putting the UK on track for its worst year in decades.
The uk will plummet into recession today for first time since 2008 with GDP expected to have slumped by a record 21% in the run up to June @GMB
The US and the eurozone have already been confirmed in recession as the global economy grapples with the sharpest downturn since the Great Depression of the 1930s. However, China, at the heart of the original outbreak, avoided recession after it returned to growth in the second quarter.
The slump in Britain is expected to be the biggest quarterly drop of any G7 economy due to the later launch of lockdown controls and the slower removal of harsh restrictions.
#Gold collapseds below $1,900 an ounce extending the precious metal’s slump into a second day, to head for its biggest two-day loss in more than seven years as investors step back from one of the hottest trades of 2020 as Treasury yields rise. https://t.co/ORjPA5me7O pic.twitter.com/SPbcOwCIwC