Historic Contraction in Q2 Sends UK into Recession

A recession is a macroeconomic term that refers to a significant decline in economic activity when compared to the previously recorded data. This morning, the pound released their quarterly GDP which was down 20.4% compared to the first three months of the year. This was the biggest contraction recorded in the history of the pound.


To put the data into perspective, during the 2008 recession, the UK’s GDP shrunk no more 2.1% in a single quarter. Every sector contracted, with the majority of the drop in activity led by private consumption which shrank by 23.1% on the quarter and accounted for two-thirds of the fall in quarterly GDP. Household spending also recorded a 23.1% decline with business investment plummeting by 31.4%.


Looking at the more recent data provided, we can see that the reopening of the UK economy that was implemented at the beginning of June has had the desired effect with their Manufacturing Production as well as Industrial Production data both coming out with positive numbers as well as an increase on the previous months data. With more businesses set to reopen as lock down measures ease further, we can also expect an increase in consumer services spending. With this in mind, a rebound in GDP for the UK in the third quarter is highly likely. Monitor the CPI, Consumer Price Index, as well as the Retail Sales data which will be released next week to see any major changes in consumer spending.


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