The UK announced on Wednesday that its GDP plunged 20.4% in the second quarter, the most since 1955 when records began, and the deepest contraction among comparable advanced economies. Although the rebound does look to be underway, GDP expanding by 8.7% in June, data such as electricity usage and credit card spending are still well below levels before the pandemic, whereas other EU countries are more or less back to normality. There were some glimmers of hope though, with construction output improving 23.5% month on month in June (still down nearly 25% on last year) manufacturing up 11% and services improving 7.7%.
The second-quarter plunge follows a 2.2% contraction in the first quarter. The market had expected a fall of 20.5%, and two consecutive periods of contraction mean the British economy is now in a technical recession. By way of comparison, in Q2 Japan’s GDP contracted by 7.6%, the U.S. 9.5%, Germany 10.1%, Canada 12%, Italy 12.4% and France 13.8%.
When talking to various news outlets the UK’s Chancellor Rishi Sunak said the primary reason for this poor performance was ‘composition’ of the British economy. ‘Social activities, for example going out for a meal, going to the cinema, shopping, those kinds of things comprise a much larger share of our economy than they do for most of our European comparative countries’ he said, adding ‘So in a situation where you have literally shut down all those industries for almost three months, a long period of time, it is unfortunately going to have an outsized impact on our economy’.
Lastly, on Wednesday the S&P briefly traded above its all-time high closing (3386) set in February this year, before finishing just shy of the mark. Amazingly, it has taken just 175 days for the index to go from peak to trough (2237 in March) and back again, which is faster than any comparable rebound.