United Kingdom: GDP records largest fall on record in Q2
GDP declined at a quicker pace of 20.4% on a seasonally-adjusted quarter-on-quarter basis in Q2, far below the 2.2% contraction recorded in Q1, as the full impact of lockdown measures introduced in late March was felt.
Private consumption fell at a sharper rate of 23.1% s.a. qoq in Q2 from the 2.9% decline in Q1, amid the closure of shops and restaurants. Public consumption declined at a steeper pace of 14.0% in Q2 (Q1: -4.1% s.a. qoq) due to lower health and education spending. Fixed investment dropped 25.5% in Q2, down from the 1.1% decrease in the prior quarter.
On the external front, exports of goods and services contracted at a more moderate pace of 11.3% in Q2 (Q1: -13.5% s.a. qoq). Conversely, imports of goods and services dropped at a more pronounced rate of 23.4% in Q4 (Q1: -9.4% s.a. qoq). The external sector contributed positively to the GDP reading as a result.
On an annual basis, economic activity contracted 21.7% in Q2, down from the previous period’s 1.7% fall.
Although the economy was depressed over Q2 as a whole, activity did recover markedly in June as lockdown measures were lifted, and this momentum should continue ahead.
As James Smith, economist at ING, comments: “We’d expect to see another decent bounce in GDP during July when a wider range of service-sector businesses were allowed to open.”
That said, downside risks to the outlook abound: They include a possible notable rise in the unemployment rate when the wage subsidy scheme ends in October, and the potential reintroduction of restrictions if coronavirus cases surge.