U.K. GDP Stumbles 20.4% in Q2 as the Country Slides into Depression

U.K. GDP Stumbles 20.4% in Q2 as the Country Slides into Depression

Published: August 14th, 2020

 Britain’s economy contracted by more than 20% in Q2 of 2020, the worst among peers, and the steepest on record. It has shoved the nation into depression, the deepest of any major economy.

The U.K. GDP has shrunk by 20.4% in Q2 of 2020; the worst slump recorded over three months. The poor economic performance has thrust the country into the steepest recession of any major economy.

Compared to the performance of Q1 of 2020, the crash in Q2 is the worst since 1955 when the country first started keeping quarterly records. Production, services, and construction, the industries that bore the worst brunt of the government’s lockdowns to curb the spread of coronavirus, experienced record drops.

Rishi Sunak, the country’s finance minister, said the figures confirm that the country has come by harsh times. The minister reiterated that hundreds of thousands of Britons had lost their jobs, and sadly, even more people will jobless in the coming months.

Sunak said that while tough choices face the country, he rushed to assure everyone that the government will help its people survive the harsh times. He added that the government would provide hope and opportunity to everyone.

The country’s economic performance, compared to 2019, amounts to a cumulative fall of 22.1% in the first half of 2020. According to the Office of National Statistics (ONS) of the U.K., it is the worst among peers, Germany, France, and Italy, and more than double the 10.6% slump that the U.S. recorded over the same period.

Tailing Peers

Though every G7 member expects a decline in the GDP, U.K.’s will be the steepest of them all. Canada’s statistics agency expects the country’s Q2 of 2020 GDP to contract by 12% quarter-on-quarter. In Japan, the economists surveyed by Reuters forecasted a slump of about 8% quarter-on-quarter.

The ONS said that the larger contraction majorly shows just how badly the lockdown measures that have been in place for the major part of Q1 and Q2 of 2020 have affected the economy. The agency said that while the effects are harrowing, the recovery will be just as worse.

According to Tom Stevenson, the director of investment at Fidelity International, the U.K. is looking at a very slow crawl from the worst recession. He said that ONS's figures on Wednesday, August 12, confirm that the U.K. is grappling with the worst recession on record.

The economist said that the economy of the U.K. is more than 20% smaller than it was at the beginning of 2020 and smaller by a similar margin than it was at the lowest point of the financial crisis. Despite the signs of recovery recorded since the beginning of June, Tom said the rate of decline compared to that of peers raises concern.

An economist at UBS Global Wealth Management, Dean Turner, agrees with Tom’s grim picture. However, he said that the impressive growth trends recorded in June show that the worst is gone. His optimism comes with an adequate dose of caution. He warned the markets to brace for an extended recovery period that may stretch for 18 to 24 months.

Pound for Pound

The GDP drop probably captures just how strict some of the measures that governments imposed to curb the spread of coronavirus were. The U.K. put in place strict confinement. However, the orders came a fortnight, ten days, and a week after Italy, Spain and France had enforced the same. The action was despite the swelling cases of the infection. Meaning, the country took longer to get the pandemic under control, hence the need for longer containment duration.

For instance, where Italy could reopen cafes, restaurants, and hair salons in mid-May, the U.K. had to wait until July 4. Germany allowed booksellers, car dealerships, and bicycle shops to open on April 20, where Britain could only do so two months later. The relaxation of the lockdown restrictions in June had immediate effects on the economy. The GDP soared 8.7% month-on-month according to the country’s statistics agency.

The U.K.’s economy depends heavily on household spending and the services sector. Both declined by record margins during Q2 of 2020. Meanwhile, China is already on the path to recovery. Meaning, the world’s most populous country, and the second-largest economy globally evaded a recession following the worst Q1 in decades.

About 750,000 Jobs Wiped off the Market

Since March, the U.K. economy has bid farewell to more than 730,000 jobs. The resulting unemployment has worst-hit both the old and the young, and many self-employed individuals.

The U.K. GDP data does not sit well for the rest of the year, according to Kallum Pickering, a leading economist with Berenberg, a Hamburg-based full-service multinational investment bank.

Kallum said that despite the gloom, there is hope in the fact that recession data is often subject to extensive revisions. However, at face value, the record drop calls for risk-aversion strategies, especially considering that the projected GDP performance shows a slump of almost 10% for 2020.

The Confederation of British Industry (CBI), the country’s premier business lobby, said that even though sustained growth is assured, many uncertainties slow the process. The lobby cited the continuing pandemic, the country’s cash flow constraints, and the indecisive nature of the relationship between the U.K. and Europe as some of the troubling points.

CBI noted in a statement that the dual threats of the slow progress of concluding Brexit negotiations and the fear of the second wave of coronavirus infections raise serious concerns.

Final Thoughts

The economy of the U.K. has contracted more than 20% in the second quarter of 2020. This decline is the worst ever quarterly performance on record. The poor performance comes on the backdrop of extended lockdown due to the government’s delay to enforce containment. Overall, almost 750,000 individuals lost their jobs. However, economists are hopeful that recovery is imminent, but they warn that such may be slow and painful.

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