MNI DATA IMPACT: UK Q2 GDP Contraction Breaks Records

The UK economy suffered a steeper decline than most other developed countries over the second quarter, even after accounting for a better-than-forecast rebound in June.

Gross domestic product plunged by 20.4% between April and June, largely in line with forecasts of both private analysts and the Bank of England. Eurozone GDP retreated by 12.1% over the same period, while the US suffered a 9.5% decline. UK output fell by 21.7% over the same period of 2019. It was by far the largest quarterly contraction since records began.

The sharp UK contraction came despite an 8.7% rebound in June and an upwardly-revised 2.4% gain in May. That leaves the economy 17.2% smaller than in February. From the February peak to the April trough, output declined by 25.6%.

Services plunged by 19.9% in Q2, accounting for almost 16 percentage points of the fall in total output. Production declined by 16.9% (subtracting 2.25pp from GDP), while construction plunged by 35.0% (shaving 2.16pp from output).

EXPENDITURE SLUMPS

On the expenditure side, household spending plummeted by 23.1% in Q2, contributing 14.32 percentage points to the fall in total output. Government spending declined by 14.0% (subtracting 2.8pp from GDP), despite heavy fiscal intervention from Whitehall. Spending on health slumped by 30.1% in Q2, largely due to delays in non-essential medical outlays, while education spending declined by 25.1%.

The service sector rebounded by 7.7% in June, extending an upwardly-revised 1.5% gain in May (previously reported as +0.9%). Manufacturing expanded by 11.0% in June, following an 8.3% rise in May, while construction jumped by 23.5% in June, after a 7.6% rise a month earlier.

The UK trade surplus, including the volatile precious metals sector, jumped to record-high GBP18.8 billion in the second quarter, adding 3.6 percentage points to GDP, from a deficit of GBP1.2 billion in the opening three months of the year.

Productivity, measured by output per hour, declined by a record 2.5% in Q2. On an annual basis, productivity slumped by 3.0%, the biggest year-on-year fall sine the final three months of 2008.