UK Enters Recession In Q2 On Historic Contraction, But Latest Data Suggests Upswing

- UK experienced worst quarterly drop on record

- GDP plunged 20.4pct in the three months to June

- Production fell by 16.9pct in Q2

- Positive activity in June lends hope for a rebound

- Analyst remain cautious on shape of recovery


By Harry Daniels

Editor-in-Chief, LiveSquawk News

@ HarryDaniels71


11.00 GMT


London, 12 August 2020 (LS NEWS) – UK statistics office has confirmed what many expected: the country hit a new record low for negative growth in the second quarter as the most recent monthly data pointed to increased economic activity as the country began to reopen.


Second-quarter GDP contracted by 20.4pct versus the first three months of the year, which the worst performance on record but slightly better than the market estimate of a 20.7pct drop.


But GDP expanded at a monthly rate of 8.7pct in June, a vast improvement from May’s 1.8pct growth rate and above the 8pct expected.


ONS Deputy National Statistical for Economic Statistics Jonathan Athow said, “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 fall in the second quarter since the three-day week. Hospitality was worst hit, with productivity in that industry falling by three quarters in recent months.”


Every sector contracted, according to the report, with the bulk of the drop led by private consumption, which shrank by 23.1pct on the quarter and accounted for nearly two-thirds of the fall in quarterly GDP. Household spending cratered by 23.1pct; business investment plummeted 31.4pct.


The service sector makes up roughly 80pct of the UK economy and on the quarter, it fell by 19.9pct with widespread declines across most industries.


Light at the end of the tunnel?

The dire state of the economy has been widely reported, but analysts are looking for signs of momentum as the country heads into the next quarter.


Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “GDP still was a hefty 17.3pct below its January 2020 peak in June, despite the month-to-month jump. July should see a similarly large rebound, driven by a recovery in consumer services spending.”


Experimental data from the ONS’ Business Impact of Coronavirus Survey (BICS), which covered the dates 13 to 26 July, found that of businesses currently trading, 45pct reported their turnover exceeded their operating costs. This compared with 16pct who reported their operating costs exceeded their turnover. However, 54pct of those businesses currently trading reported a decrease in turnover versus what is normally expected.


“We’d expect to see another decent bounce in GDP during July when a wider range of service-sector businesses were allowed to open,” ING analyst James Smith noted. “And arithmetically, the timing of all of these changes (towards the end of the second quarter, or early into the third) probably means that the UK’s third-quarter rebound is likely to appear larger than in many other economies.


“While we suspect the rebound may not be quite as large as the Bank of England’s 18pct third-quarter growth forecast, it might not be far off.”


With no vaccine close to being ready for use, the expiration of the Job Retention scheme at the end of October, and no sign of a trade deal with the European Union any closer, it seems safe to say that risks to any nascent UK recovery are still stacked to the downside for the time being.