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Investment planning: Gross Domestic Product – Q2 2020
Technical article
Publication date:
25 August 2020
Last updated:
25 February 2025
Author(s):
Technical Connection
Update from 6 August 2020 to 19 August 2020
GDP fell over 20% in Q2 2020
(AF4, FA7, LP2, RO2)
The announcement from the Office for National Statistics (ONS) that the UK economy shrank by a fifth in the second quarter of the year hardly counts as news. The largest quarterly fall on record was, according to Reuters, almost exactly in line with economists’ expectations. The drop was more than double that of the USA (9.5%) and compares with 12.1% for the eurozone (helped by a 10.1% decline in Germany).
Another piece of non-news was that the UK economy is now technically in recession, having recorded two consecutive quarters of negative growth (Q1 was a more modest drop of 2.2%). The ONS calculates that compared with the same quarter a year ago, the UK economy has fallen by 21.7%. Over the first half of 2020 the decline was 22.1%, almost as bad as the 22.7% of the eurozone laggard, tourism-hit Spain.
To put some hard cash numbers to the GDP drop, at 2016 prices UK GDP in Q2 2019 was £521.3bn whereas the latest figure is £408.0bn. In current prices that is about £120bn lost to the economy, a figure which helps to explain the unprecedented level of Government support.
If there is a ray of light, it is to be found in the GDP monthly estimate for June, which the ONS’s initial estimate puts at +8.7%, a little above the Reuters’ economists’ consensus forecast of 8.0%. The ONS also revised upwards its May figure from +1.8% to +2.4%. The two months of positive numbers contain a large element of unwinding of demand that had been suppressed during lockdown: when that starts to tail off is crucial. A reminder of what could be ahead came in news on 11 August that early estimates based on July 2020 PAYE Real Time Information show payroll numbers down by 2.5% (730,000) compared with March 2020. Meanwhile the June estimate for furlough numbers (of individuals, not jobs) was 7.5m.
The 20%+ fall grabs the headlines, but it is already history.
Source: ONS: GDP first quarterly estimate, UK: April to June 2020 – dated 12 August 2020.
https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/latest
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.
