Graeme Wearden 

UK falls into recession as GDP tumbles 20.4% in April-June – as it happened

Britain’s economy shrank by a fifth in the last quarter, much worse than the US or the eurozone
  
  


FTSE 100 ends at three-week high

And finally, the UK stock market has closed at its highest level in over three weeks - as Britain’s slump into recession fails to alarm investors.

The FTSE 100 has ended the day 125 points higher at 6280, its best closing level since 17th July.

Every sector rallied, led by utilities, healthcare, basic materials and energy companies.

That’s a surprising response to the first recession in over a decade.... but don’t forget that the slump was ‘priced in’, and investors are now betting on low interest rates, and fresh stimulus measures from central bankers.

Michale Hewson of CMC Markets has flagged up some of the big movers.

Amongst the best performers today it’s been a good day, as well as a good first half of the year for Just Eat Takeaway, which saw revenues surge in the first half to €675m from €179m, as orders rose by 32%, due to the various economic lockdowns. That didn’t stop the company posting a first half loss of €158m, though this was largely driven by the various associated costs related to the recent merger between the two companies.

It’s also been a good day for the Admiral Group share price, after a decent set of H1 numbers which saw a 30% rise in pre-tax profit of £286.1m. This was despite a fall in first half turnover of 4%, after the company pledged to repay £100m to its customers since they weren’t driving as much as they used to, due to lockdown restrictions. The company also pledged to pay a dividend of 70.5p a share, which included the payment of a 15.5p special dividend, which has seen the shares rise to the top of the FTSE100.

ASOS shares have hit their highest levels since December last year, after the company said they expected full year revenue growth to be between 17% and 19% higher, with profit before tax to be in the region of £130m and £150m.

That’s all for today. Here are links to our coverage of the GDP report:

The UK’s dire GDP figures show that governments don’t have to choose between health and growth.

So argues economics professor Jonathan Portes, who writes that Britain’s economy suffered because politicians didn’t get a proper, effective grip on the crisis. That lack of competence has created a shortfall in confidence, he says here...

There are three reasons for this. The first is fairly obvious. The quicker the virus is definitively suppressed, the quicker the government can lift the health-related restrictions it imposed to contain the virus, and the quicker the economic recovery. Those countries that did get it under control, whether by luck or judgment, have clearly benefited.

The second is less obvious. We now have ample evidence that most of the behavioural change – and hence the impacts both on the spread of the virus and on the economy – associated with “lockdowns” comes not directly from government-imposed restrictions, but from individuals and households changing how they live, travel and work in response to the perceived threat of the virus. Again, the quicker and more successful the measures are to contain the pandemic, the quicker the recovery, regardless of what the government does on the economic front.

The third is even more subtle. In the early 2010s, Paul Krugman and others referred derisively to the “confidence fairy”: the idea that public spending cuts would make the private sector more willing to spend, offsetting any negative impacts. This never made much sense. But business and consumer confidence does matter to spending and investment.

In the current circumstances, what drives confidence is competence – in particular, the perceived competence of the government in handling the pandemic. And, sadly, nobody would hold up the UK as a model here. There is plenty of blame to go around, but overall the UK’s performance has been poor, and the public is well aware of that

The Evening Standard argues that today’s GDP report shows the economy could bounce back swiftly....unless rising unemployment hurts the recovery:

The data showed construction output improved 23.5% month on month in June — still down 24.8% on last year — with services improving 7.7% and manufacturing up 11%. However, business investment slumped as companies protected cashflow.

Nomura chief UK economist George Buckley said although Britain’s economy had suffered worse than its European peers, the bouncebacks in industrial production figures across the Continent indicated that those country’s that suffered the sharpest falls recovered the quickest.

He added: “The biggest question will be what happens in the labour market and how that feeds through to wages and spending.”

Things are hotting up on the London stock market, as well as on the streets outside.

The FTSE 100 is pushing higher in late trading, now up 135 points or 2.2% at 6289.

Traders are looking ahead to the recovery, rather than pondering the historically bad growth figures, as Craig Erlam of OANDA explains:

The UK is officially in its worst recession on record, as the economy shrunk by 20.4% in the second quarter, broadly in line with expectations. While there is some cause for optimism, being the 8.7% monthly rebound in June as shops reopened, the economy remains a sixth smaller than in February, highlighting the scale of the job ahead.

The market reaction was predictably muted, with the horrific GDP figure widely expected and, in many ways, outdated. It’s one for the history books and today’s headlines but as far as markets are concerned, a lot has happened since then in this ever-evolving crisis.

Just in: stocks of oil in America fell last week, in a possible sign that economic activity is strengthening.

US crude oil stocks fell by 4.5m barrels last week, more than the 2.9m drop expected. Stocks of gasoline and distillates (such as jet fuel and diesel) also fell.

UK in recession: What the papers say

The UK’s historic contraction is dominating the headlines today.

The Financial Times focuses on the fact that the UK economy suffered a bigger slump than any other major European economies:

The figures confirm that the pandemic has hit the UK harder than other developed economies. After the second-quarter contraction, the decline in UK GDP since the end of 2019 is double that in the US and second only to Spain among European peers.

Analysts said the UK’s underperformance was partly due to the length of its lockdown, and partly because the consumer-facing services sector that was hardest hit by social distancing has a bigger weight in GDP, accounting for 80 per cent of the economy.

Bloomberg is concerned that the recession will be followed by a surge in unemployment:

That casts a light on the risks of winding down government support for companies and workers too soon. Almost 10 million jobs have been put on furlough programs under which the government pays the wages. Sunak, who has borrowed tens of billions of pounds to finance spending, insists the time has come to start phasing the plan out, although his critics say it should be extended.

“Sunak has got a tricky job,” said James Smith, developed markets economist at ING. “There’s no easy answer to the Job Retention Scheme and that’s the main risk at the moment as that is unwound. There’s a real chance that the recovery stalls if unemployment broadens out.”

In The Telegraph, Tim Wallace points out that the recession is already over (but not officially), but rising joblessness could undermine hopes of a V-shaped recovery:

The hospitality industry was only able to reopen from 4 July, so was closed for the entire second quarter from April to June.

This was down almost 90pc, so the sector is ripe for a major recovery.

Yet its plight also illustrates the difficulties of getting back up to February’s production levels rapidly - completing the V-shape.

As pubs, restaurants and hotels reopen, any trade marks a sharp increase from second-quarter levels.

Yet if they cannot get back to their full capacity, because of social distancing rules or customers’ caution or a lack of tourists, then the ‘V’ will fall short, potentially taking much longer to complete the recovery.

As unemployment rises in those industries which fail to rebound, the risks rise that households cut spending and a weakness in one sector spreads to another.

The Independent’s Ben Chapman says the scale of the recession shows that the government mishandled the lockdown:

The UK’s reliance on consumer services, which often require face-to-face contact, is one factor in the deeper than expected contraction.

Yet, that is not a sufficient explanation. Deep declines were experienced across the board, in services, construction and manufacturing.

Another answer to this important question is given weight by the GDP numbers: that the UK entered lockdown too late and when it did so the government was too timid in its measures to control the virus.

In so doing, it allowed Covid-19 to spread much more widely than it otherwise would have done, necessitating a longer shutdown.

The consensus among economists is that Britain’s economic slump – the deepest on record – was in part due to the length of time that the country’s businesses were forced to close.

Updated

As well as pushing the UK into recession, Covid-19 has sparked a cycling boom.

We already knew that bike sales boomed during the lockdown,with commuters keen to avoid public transport.

Now, British foldable bike maker Brompton is launching a subscription service, letting consumers hire bikes on a monthly or annual basis, with insurance, repairs and servicing included. The target market includes people keen to get back to the office on two wheels.

Starting later this summer, it works out at £30 per month if you sign up for a year (roughly £1 per day) or £42 per month for a rolling monthly subscription (if, say, you only wanted to cycle part of the year).

In comparison, new Bromptons typically cost over £1,000.

More details here.

Brompton Bike Hire MD, Julian Scrivens, says it’s aimed at those who want bike access without having to buy one outright:

It’s an option to make everyone’s life easier, whether you’re a commuter, student, family or just want to cycle on the weekends but don’t want to commit or have the space to own a bike forever.

He’s also told CNBC that demand for bikes has “gone ballistic” during the coronavirus pandemic.

Updated

US inflation higher than expected

Meanwhile in America, inflation has risen faster than expected.

Consumer prices jumped by 0.6% in July compared to June, pushing annual inflation up to 1%.

Food prices were 4% higher than a year ago, while core inflation, stripping out food and energy, jumped by 1.6% per annum. That may signal that inflationary pressures are building.

Here’s some snap reaction:

The City continues to brush aside the UK’s slide into recession.

The FTSE 100 index has now jumped by 84 points today, or 1.3% to 6,238, the highest in nearly three weeks.

Takeaway firm Just Eat is the top riser, up 6.5% ,after reporting a 44% surge in revenues so far this year from hungry lockdowners.

Insurance group Admiral are close behind, up 6% at a record high, after posting a 30% surge in profits during the pandemic.

The firm benefited from “significantly lower motor insurance claims frequency as customers stayed at home and fewer miles were driven”.

NIESR: Economy to grow 15% in Q3

NIESR, the economic think tank, has predicted that the UK economy will recover strongly in the current quarter.

Having analysed today’s GDP report, they estimate growth of around 15% in July-September.

That would mean the UK would rebound out of recession. But it would still leave GDP around 10% lower than in February.

Dr Kemar Whyte, NIESR’s senior economist for Macroeconomic Modelling and Forecasting, says:

“Today’s ONS estimates suggest that GDP fell by a record 20.4 per cent in the second quarter of 2020, following a decline of 2.2 per cent in the first quarter of the year, thereby confirming the UK’s first recession since the financial crash.

However, the monthly estimate for June suggests a rebound of 8.7 per cent, reflecting further easing of Covid-19 lockdown measures – though it remains a sixth below its level in February. Despite the recovery noted in June, the path ahead remains precarious. An extended period of growth will be required to make up the ground lost in recent months”

Rishi Sunak’s warning that ‘hard times’ have arrived are a sign that the government expects the economic pain to continue.

That pain is already being felt in the jobs market, with employment falling sharply in the last quarter. The Bank of England predicts unemployment will almost double by the end of the year, from 3.9% to 7.5%.

Nimesh Shah, CEO of tax and advisory firm Blick Rothenberg, argues that the Chancellor needs to seriously consider fresh moves to support jobs - such as tax exemptions or holidays for National Insurance.

Shah says:

“The UK is in deep recession, green shoots are appearing but is the worst yet to come?”

The critical time will be the last quarter of 2020, and there is a lot resting on the impact of the furlough scheme finally closing in October, the important festive trading period for businesses and a realistic chance of successful vaccine becoming available. Many businesses are limping through to Christmas, but it will be a rollercoaster between now and the New Year with so many unpredictable elements in play.

The Press Association have pulled together a Q&A on the UK’s fall into recession:

Why is the UK in recession and what does it mean?

The Office for National Statistics (ONS) officially declared the UK in recession - the steepest on record - after the economy plunged by a record 20.4% between April and June due to the coronavirus lockdown.

This follows a 2.2% contraction in the previous three months and means the UK entered into a technical recession, as defined by two successive quarters of falling output.

It marks the first time since the 2008 global financial crisis, when the UK fell into a year-long recession.

Why has the UK economy been the hardest hit among the major global economies?

Britain’s second quarter contraction was the steepest of all the major economies, worse even than Spain’s 18.5% tumble and more than double the 9.5% plunge seen in the United States.

Experts say some of this is down to the later timing of Britain’s lockdown in March and the path of easing restrictions.

But the hit is also down to the make-up of Britain’s economy, which relies on the services sector for more than three-quarters of its output.

The services sector - spanning retail and hospitality to banks and real estate - has been knocked particularly badly by the lockdown, with restrictions easing only slowly for many and some activities still not fully open.

What does the June rebound in the economy mean?

Monthly data showed gross domestic product (GDP) grew by a better-than-expected 8.7% in June, following expansion of 2.4% in May, as lockdown restrictions eased further.

With non-essential shops having reopened for business in June, it meant the powerhouse services sector notched up growth of 7.7%.

Restaurants, hotels and pubs have also since reopened, which is expected to lead to an even bigger bounce-back in July and August.

Experts believe the third quarter overall will see steep growth, meaning the UK will see a swift exit from recession.

Does that mean the UK economy is already out of the woods?

Unfortunately not. Despite growth over the past two months, the economy is still 22.1% smaller than it was at the end of 2019.

And there are fears the UK faces a long road ahead to economic recovery, given the threat of a second wave and possible further lockdowns, with a jobs crisis also on the horizon as Government support measures come to an end.

What does it mean for Britons?

Recessions ultimately have an impact on living standards, but the full effect will largely depend on the scale of unemployment and how long it takes for businesses and the jobs market to recover.

If you’re just tuning in, this chart gives the clearest picture of how the UK economy has suffered its worst recession on record:

And here’s a handy thread of this morning’s economic news, from the ONS:

Updated

Here’s more reaction to the GDP report, from Paul Johnson of the Institute for Fiscal Studies:

Ulrik Harald Bie of Danish newspaper Berlingske:

Restructuring expert Trevor Borthwick, Partner at law firm Mayer Brown, warns that the full damage caused by the recession will become clearer once the government’s rescue schemes end:

For many companies digesting today’s news will be hard, as many sectors including retail, casual dining and construction have already been significantly impacted by the global pandemic. The extent of the problem will only be revealed when the Government dismantles the support schemes which will leave business vulnerable to managing their own debt. This, for some, will be crippling.

Dynamic conversations will be taking place between lenders and their customers to manage this process and ensure the terms of their debt are manageable. The UK has a culture of ‘rescue finance’ with insolvency being the last resort for struggling businesses. Wherever possible, banks and lenders aim to ensure financial support is available for financially stressed borrowers.

In another blow, UK productivity fell at a record rate in the last quarter.

With many workers furloughed at home, output per worker fell by 19.9% in April-June compare with January-March.

Output per hour, which should strip out the impact of the Jobs Retention Scheme, fell by 2.5% compared to Q1 - the largest quarterly fall since estimates began.

Every sector in the economy saw a quarter-on-quarter fall in output per hour. Construction saw the largest fall of 11.4% and manufacturing saw the smallest at 0.3%.

Updated

The slump in GDP in April-June highlights the mistakes made by the UK government over Covid-19, writes our economics editor, Larry Elliott:

Twice as bad as the US. Ten times worse than anything seen during the financial crash of the late 2000s. Worse than any EU country. The UK is planted firmly at the bottom of the Covid-19 developed country league table after the economy contracted by a fifth in the second quarter of 2020.

The reasons Britain is once again being dubbed by some “the sick man of Europe” are pretty clear. After weeks of dithering, the government imposed a stringent lockdown that was tougher and lasted for longer than elsewhere. Allowing the virus to spread to care homes meant the re-opening of bits of the economy was slow.

Boris Johnson and his ministers can’t be blamed for the arrival of a global pandemic. What will be an issue at the inevitable inquiry into why Britain had more deaths and suffered a bigger hit to growth than its rivals is the extent to which government mistakes intensified the crisis.

More here:

Here’s a reminder of how the UK suffered a worse slump than other advanced economies:

UK GDP fell by 20.4% in the second quarter of 2020, more than double the fall seen in the US
% change in real GDP in Q2 2020 compared with Q1 2020
to21
%
25
20
15
10
5
0%
UK
France
Italy
Canada
Germany
US
Japan
Guardian graphic | Source: ONS, Organisation for Economic Co-operation and Development. Note: Figures for Canada and Japan are forecasts

[Note: I should have mentioned earlier that the figures for Canada and Japan were estimates]

Chancellor Rishi Sunak has told Sky News that the UK economy was getting back to a “new normal” as lockdown restrictions ease.

Sunak explains:

“It’s not a sustainable situation to have vast swathes of our economy essentially shut down.

“And that’s why we have been able to successfully reopen bits, and do it in a safe way.

“And as people get back to going shopping, or going out for a meal, or indeed getting back to their office, they will see that it’s a new normal, it’s a safe normal.”

Meanwhile in the eurozone.... factory output has also rallied in June.

Industrial production across the euro area jumped by 9.1% month-on-month, slightly below the recovery seen in the UK (see previous post).

It’s another sign that Europe’s economy strengthened in June as lockdowns eased.

Data firm Eurostat adds:

Production of durable consumer goods rose by 20.2%, capital goods by 14.2%, intermediate goods by 6.7%, non-durable consumer goods by 4.8% and energy by 2.6%

Encouragingly, manufacturing, services and construction output did jump sharply in June, helping the economy expand by 8.7%.

The ONS reports that all three sectors expanded, but are also still significantly smaller than before the lockdown:

  • Services sector: grew 7.7% in June, but output is 17.6% below the level of February 2020
  • Industrial production: grew 9.3% in June, but 11.6% below February’s level
  • Manufacturing: grew 11% in June, but 14.2% below February’s level
  • Construction: grew 23.5% in June, but 24.8% below February’s level

Sky News’s Ed Conway shows how the Covid-19 slump is even worse than the downturn of the 1920s:

Expert: UK faces ‘Nike swoosh' recovery, not a V

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:

He also flags up that retail activity rebounded quite strongly in June, once more shops were allowed to reopen...

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.

That puts the Footsie on track for its fourth day of gains.

Investors had already priced in a recession, of course, and are encouraged to see the economy grew over 8% in June.

Connor Campbell of SpreadEx explains:

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.

And yet, the FTSE found itself 0.7% higher after the bell, hitting a near 3-week peak of 6190. In comparison, the German DAX was flat at 12950, with the French CAC adding 15 or so points.

Why? Well though for the overall quarter the economy shrank by 20.4%, the economy grew by 2.4% in May and 8.7% in June. And while that still leaves the UK way off where it was pre-pandemic, it has sparked hopes that the country can turn the ship around.

UK GDP since 1950

UK in recession: What the economists say

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.

No-one knows exactly what the recovery from coronavirus will look like - particularly with the potential for a second wave of infections and further local lockdowns - but it is likely that it will be a slow crawl towards pre-Covid levels with further government stimulus needed to restore sustained growth.

Dean Turner, economist at UBS Global Wealth Management, says June’s growth shows that the worst is behind us, but it could take another 18 months to return to pre-Covid levels.

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 Linda Yeuh says the scale of the recession is “still a shock”, even though it was widely expected. The 35% contraction in construction is particularly astounding, sh adds:

Ranko Berich, Head of Market Analysis at Monex Europe, reckons the economy will recover faster than after the last recession, as the economy reopens.

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.

Secondly, the Government’s furlough scheme has greatly delayed the labour market shock you’d associate with a recession of this magnitude, in the hopes of lessening long-term impacts to consumer behaviour due to job losses.”

Sunak: Hard times are here

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.

“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.”

This heatmap from Bloomberg shows how the UK fared particularly badly last quarter:

Full story: UK economy plunges into deepest recession since records began

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.

The latest snapshot confirmed growth returned in May and strengthened in June, although not by enough to offset a dramatic collapse in output in April during the first full month of restrictions on business and social life, which was deep enough to push the economy into negative growth across the quarter.

Economist Keith Church points out that restaurants, bars and hotels drove the recovery in June:

Economist: UK 'blunders' caused worse slump in G7

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.

That’s because the UK went into lockdown later than most other G7 nations, and then took longer to relax those measures.

For example:

  • US: -9.5% drop in GDP in April-June
  • Germany: -10.1%
  • France: -13.8%
  • Eurozone: -12.1%

Also, Japan is estimated to have shrunk by 7.6%, and Canada by 12%.

Labour’s shadow chancellor, Anneliese Dodds, tweets that other European countries all did better, pointing out that the eurozone European Union contracting by 11.9% in April-June.

Economist Sam Tombs of Pantheon agrees, saying the UK blundered badly:

Updated

Services, manufacturing and construction all suffer record slumps

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.

The construction sector was particularly badly hit, after building sites were shut down during the height of the lockdown.

Here’s the details:

  • Services output decreased by 19.9%
  • production output fell by 16.9%,
  • construction output contracted by 35.0%

ONS: UK recession much worse than US

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.

The ONS says:

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.

Economy grew in June, but a long way to go

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 that’s not enough to recover the lost output earlier in the year, as this chart shows:

As the ONS puts it:

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.

Updated

The contraction in Britain’s economy this year is much, much worse than the last recession, as this chart shows:

UK suffers worst quarterly slump ever

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%.

UK falls into recession after shrinking 20.4% in Q2

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.

More to follow...

Updated

Not long to go....

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.

Whatever the numbers are, and they won’t be pretty, the more important question is how quickly the UK economy can bounce back, and we have seen some progress on that. Today’s numbers will cover the sharp fall seen in April, which the monthly numbers showed as a -20.4% fall, followed by a 1.8% gain in May.

This means we need to see a sharp acceleration in the June numbers, to pull the quarterly number back up into the mid-teens, given the UK’s heavier reliance on services, which could well act as a drag on the prospect of a V-shaped bounce back, due to the slow pace of the economic re-opening.

Introduction: UK GDP to show Covid-19 plunge

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.

As my colleague Richard Partington explains:

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.

GDP for various countries in Q2 2020

Much of the damage was done in April, after the government forced offices, shops and factories to shut, to slow the virus’s spread.

Today’s data will also show whether the economy started to clamber off the mat. Economists predict growth of around 8% during June, which would be an improvement on the meagre 1.8% recorded in May, and the 20.3% slump in April.

We’re also hoping to see a pick-up in manufacturing output and construction work in June.

Also coming up today

The stock markets could be edgy, after a late fall on Wall Street last night. Fears that talks over a new US stimulus package are deadlocked prevented the S&P 500 hitting a new record high. Tech stocks also slid, while gold and silver took a real hammering.

The latest US inflation data, oil inventory stats, and eurozone industrial output figures, will also show how the global economy is faring.

The agenda

  • 7am BST: UK GDP for June, and the April-June quarter
  • 7am BST: UK goods trade balance, industrial production and construction output for June
  • 10am BST: Eurozone industrial production for June
  • 1.30pm BST: US inflation for July
  • 2pm BST: NIESR thinktank’s monthly UK GDP tracker
  • 3.30pm BST: US weekly oil inventory figures
 

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