Economic Perspectives -
Coronavirus crisis: ONS confirms GDP fell about a fifth in 2020Q2
The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest economic data:
- The ONS marginally revised its estimated fall in GDP in 2020Q2 to 19.8% (from 20.4%), after a decline of 2.5% in 2020Q1. It was the largest quarterly contraction since quarterly records began in 1955.
- The drop in UK GDP in the first half of 2020 was the severest of the G7 countries.
- Government measures to contain the COVID-19 pandemic caused widespread disruption to economic activity in 2020Q2, with record falls in services, production and construction.
- Turning to expenditure, household consumption fell by a record 23.6% (QOQ) in 2020Q2, whilst government consumption dropped 14.6% and gross fixed capital formation contracted by 21.6%. But there was an improvement in external trade as imports slumped (down 22.7%) more than exports (down 11.0%).
- The Bank of England’s Chief Economist, Andy Haldane, expects GDP could rise by 20% (QOQ) in 2020Q3. But he warned in a speech that the economy was facing “extraordinarily large uncertainties” with the risks skewed to the “downside”.
- The current account of the balance of payments improved in 2020Q2, reflecting an improved trade balance, though much of the quarterly improvement was due to volatile swings in precious metals.
- The Bank of England reported that the number of mortgage approvals for house purchase rose to 84,700 in August, the highest since October 2007. There was a modest uptick in net mortgage borrowing in August.
- The Bank also reported the demand for consumer credit eased in August, compared with July, but net borrowing was still positive, whereas it had been negative between March and June.
- Nationwide reported that houses prices rose 5.0% (YOY) in September, compared with August’s 3.7%.
- The Internal Market Bill has completed all stages in the Commons and has now gone to the Lords.
- Round 9, the final formal round, of the UK-EU negotiations on the UK-EU future relationship ended last week without agreement. But the UK Prime Minister and the European Commission President have agreed to continue the negotiations, noting “the importance of finding an agreement”.
Ruth Lea said “The ONS’s latest estimates confirmed that GDP fell by around a fifth in 2020Q2. And they serve to remind us of the damage the lockdown restrictions, however justified, did to the economy. Granted, the economy has bounced back well in 2020Q3, but with the prospects of tighter restrictions and the threat of a surge in job losses, recovery could struggle in the fourth quarter and into 2021.”
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