UK: GDP seen contracting more than 10% this year – UOB

In light of the recent publication of UK’s GDP figures, Economist at UOB Group Lee Sue Ann gives her opinion.

Key Quotes

“The UK economy shrank by a record 19.8% q/q in 2Q20, when COVID-19 lockdown measures were in force, a slightly smaller decline than an initial estimate of a 20.4% q/q fall in output. Despite the upward revision, this is still the largest quarterly contraction in the UK economy since quarterly records began in 1955 and marks the second consecutive quarterly decline after a fall of a revised 2.5% q/q in the previous quarter.”

“Production output fell by 16.3%, marking the fifth consecutive quarterly decline. The fall was mainly the result of the 20.4% monthly decline in production output in April, which was driven by a fall in manufacturing output.”

“Construction output decreased by 35.7% in the quarter, reflecting declines in new work, as well as repair and maintenance. Most notably, private new housing declined by 49.5% as housebuilding activity was affected by various social distancing measures that were put in place in response to the (COVID-19 pandemic.”

“Going forward, mounting job losses and the risk of a messy Brexit are threatening a turbulent end to the year. Millions of jobs were supported by the government’s Coronavirus Job Retention Scheme, which has seen it subsidize the wages of workers in a bid to stop employers making job cuts… However, the latest jobs data is unlikely to show the true extent of job losses caused by the COVID-19 pandemic, because under the Coronavirus Job Retention Scheme, the government has paid up to 80% of workers’ monthly wages up to GBP2,500.”

“The downside risks have led us to downgrade our full-year 2020 GDP forecast to -10.1% from -7.6% previously, with prospect of any economic recovery expected to take longer.”