Seasonally adjusted real GDP contracted by 20.4% in the second quarter, the largest quarterly fall ever recorded, according to estimated figures from the Office for National Statistics (ONS). In June real GDP rose by a monthly 8.7%, but remained 17.2% below its pre-pandemic level.
The contraction closely matched our forecast (-20.6%) and confirmed the dramatic slump in activity as a result of the coronavirus pandemic. This was the biggest quarterly decline since comparable ONS records began in 1955 and significantly larger than falls in the euro zone (-12.1%) and the US (-9.5%). Lockdown measures in the UK remained in place for longer than in many advanced economies in April-June. In the second quarter there were record output falls in services (-20%), manufacturing (-20%) and construction (-35%).
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GDP estimates are subject to greater uncertainty than usual, but the cumulative decline in UK GDP over the first half of 2020 was the largest of all G7 economies (close to double the fall in the US and Germany), following a 2.2% decline in the first quarter.
The collapse in second-quarter GDP mainly reflected the impact of the lockdown throughout April, when monthly output dropped by 20%. Since mid-May a gradual easing of restrictions has led to a partial rebound, with GDP rising by 2.4% in May and 8.7% in June, when non-essential retail outlets were allowed to reopen. The strongest growth in June was in construction (+24%), with manufacturing up by 11% and services up by 7.7%. Despite this improved performance, output remained well below pre-pandemic February levels in construction (-25%), manufacturing (-14%) and services (-18%).
The expected lagged deterioration in the labour market and uncertainty over the path of the virus mean that the recovery will be uneven and protracted. The full-year contraction in 2020 GDP is forecast to be the deepest since 1921 and we do not expect output to return to pre-pandemic levels until 2023. The likely near-term progression is a strong mechanical rebound in third-quarter growth, followed by a more challenging final quarter, as the end of the government’s job-retention scheme leads to job redundancies amid a backdrop of subdued global demand, renewed Brexit-related uncertainty and the possibility of further localised lockdowns and renewed pressure on health services from seasonal flu.
The contraction in second-quarter GDP closely matched our forecast (-20.6%). We continue to forecast a strong rebound (of 16.9%) in the third quarter and a full-year contraction of 9.4%.
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