Economic Perspectives –

Coronavirus crisis: GDP growth disappoints in August

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


12th October 2020


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:

  • GDP rose a disappointing 2.1% (MOM) in August, suggesting a significant loss of momentum in the recovery despite the further relaxation in restrictions in the month and the supportive Eat Out to Help Out Scheme.
  • In August, services rose 2.4% (MOM), production rose just 0.3% whilst construction was 3.0% higher.
  • Significantly, the “accommodation and food services” grew over 70% in August, contributing 1.25 percentage points to the 2.1% growth in GDP in the month, suggesting that the rest of the economy contributed less than 1 percentage point to growth. The “food services” sub-sector, specifically, was boosted by the one-off Eat Out to Help Out Scheme, whilst the “accommodation” sub-sector was boosted by domestic “staycations”, reflecting international travel restrictions.
  • Given the imposition of further restrictions during the month of September, it can be expected that growth will be very weak in the month. Moreover, given the expectation of the imposition of further restrictions in October, the economy can be expected to continue to underperform. If GDP were to stagnate for the September-December period, which seems entirely plausible, GDP would fall by nearly 10% (YOY) in 2020.
  • Markit surveys suggested that growth would continue in September, albeit at a slower rate than in August. However, it is likely that much of the survey work would have be done prior to the latest announcements (especially that of 22 September) on the tighter restrictions.
  • SMMT data showed that car production in the 8 months to August was down 40% (YOY), whilst new car registrations in the 9 months to September were 33% down (YOY).
  • The housing market remains buoyant, reflecting pent-up demand and the stamp duty holiday. According to the Halifax house prices rose 7.3% (YOY) in September.  
  • There was an “underlying” (excluding precious metals) total trade surplus of £7.7bn in the three months to August, as the goods deficit was more than offset by the services surplus.

On policy:

  • The Chancellor announced on 9 October an expansion to the Job Support Scheme (JSS) for firms that were “required to close their premises due to coronavirus restrictions” The government will pay two thirds of the affected employees’ salaries. The original JSS was included in the Winter Economy Plan (24 September).
  • The National Audit Office (NAO) concluded that defaults on the Bounce Back Loan Scheme (BBLS) could cost the government of £15bn-£26bn.

Other news:

  • The September Global Financial Centres Index (GFCI), compiled by Financial Centre Futures (FCF), found that New York retained its first place in the index, but, encouragingly, second-placed London had “made up ground” on New York in terms of the ratings.
  • y industry sector (of which there are eight), London ranked second behind New York in banking, investment management, professional services and government & regulatory matters, but was fourth for finance, fintech and trading and fifth for insurance.


Ruth Lea said “The August GDP data were very disappointing, especially as there had been such a boost to output in the “food services” sub-sector from the Eat Out to Help Out Scheme. Given the increasing restraints on the economy, stagnation for the months September-December now seems quite plausible. Of course, this scenario may prove to be too pessimistic, and the Markit surveys suggested continuing growth in September, albeit slower than in August. Alternatively, it may prove to be too optimistic if the renewed restrictions, along with the anticipated rising unemployment as the Coronavirus Job Retention Scheme comes to an end at end-October, push the economy back into contraction”.




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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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