UK Economy Records Historic 19.8% Decline in Q2

LONDON, KOMPAS.com – The UK economy shrank by 19.8 percent in the second quarter of 2020 as the Covid-19 crisis creates historic economic hits in the country.

Although it was a record collapse of the UK economy, the decline was slightly smaller than first estimated.

The Office for National Statistics (ONS) said that the initial estimate in the three months to June was of a quarterly 20.4 percent crash.

Though the British economy slightly missed estimates, the economic downturn is still more than any other major advanced economy.

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The fall was the biggest since the ONS records began in 1955. Other data have suggested Britain is on course for its biggest annual fall since the 1920s.

The UK economy had already shrunk by 2.5 percent in the January-March period as the country entered lockdown in late March.

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Output has rebounded in recent months but the recovery looks to be fading with rising coronavirus cases and forecasts of a jump in unemployment as the government scales back job support.

"The renewed Covid-19 restrictions will probably mean that GDP stagnates in Q4, leaving economic activity marooned 5.5 percent short of its pre-crisis level," Ruth Gregory of consultancy Capital Economics said.

"And the risk now is that renewed containment measures send the recovery into reverse," she added.

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Households saved a record 29.1 percent of their income, up from 9.6 percent in the first quarter, as they were unable to spend in many shops and restaurants during the lockdown, while incomes were supported by a government job program which ends next month.

Heavy toll

Britain has suffered Europe's highest death toll from Covid-19, with more than 42,000 fatalities.

Compared with a year earlier, Britain's second-quarter output tumbled 21.5 percent — the same as in Spain — while France reported a 19.0 percent drop.

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The statistics office said differences in how countries estimated public sector activity — especially whether they focused on money spent or used the ONS' approach of looking at the extent of disruption to normal services — complicated international comparisons.

Nonetheless, it said the UK economy shrank more than any other Group of Seven economy in the first half of 2020.

There have been some bright spots in the recovery.

Retail spending exceeded pre-pandemic levels in July and August — driven by a boom in online shopping, groceries and home improvement — and figures on Wednesday showed the biggest annual rise in house prices in more than four years.

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However, Bank of England Governor Andrew Bailey has warned the expansion is likely to lose pace, with unemployment set to rise to 7.5 percent later this year, some parts of the economy facing new Covid-19 restrictions and headwinds from a fresh jump in cases.

Britain's current account deficit — normally one of its weak spots — shrank sharply to £2.8 billion ($3.6 billion), or 0.6 percent of GDP, reaching its smallest in nine years as a result of the slump in global trade caused by the pandemic. ($1 = 0.7794 pounds)

(Writers: David Milliken, William Schomberg | Editors: Michael Holden, Estelle Shirbon, Andrew Heavens, Tomasz Janowski)

Source: https://news.trust.org/item/20200930055420-iazda/