UK economy: the country is in recession for the first time since 2009
With a decline in GDP two quarters in a row, the UK is officially in recession for the first time in 11 years. The GDP fell by 2.2% between January and March 2020 and shrank further by 20.4% between April and June. This is the country’s worst crash since quarterly records began in 1955.
I must admit that in my blog comment back in March of this year I had a somewhat more optimistic outlook on the year ahead.
Although I expected the markets to dip as mentioned, I didn’t then and still do not now expect the slowdown to be anywhere near as critical in proportion or consequence as in 1929.
However, in mitigation of my optimism then, I hadn’t factored in the political reaction (worldwide) to this highly infectious disease - and in all honesty I don’t consider that anyone, not even Nostradamus, saw this chain of events occurring.
Without delving into the political arena too far and, obviously, as I can only really speak from first hand experiences in the UK, as unpopular as it will read I do consider there has been too much of a knee-jerk over-reaction to a seemingly, and surprisingly in this day and age, little understood ‘phenomenon’. That coupled with too much diverging advice being offered by too many so-called experts of whom many seem to have what are best described as ‘conflicts of interest’.
The end result being that many areas of commerce have been unnecessarily crippled, all this being exacerbated by the main stream media (MSM), both social and others, propagating a ‘fear factor’ designed, it would seem, with click-bait in mind rather than being based on any true data - they seem to have a real difficulty, pre-destined or otherwise, in distinguishing between morbidity and mortality!
So enough of that - what then of the markets and the economy?
It’s no big secret that the UK gross domestic product (GDP) has taken a bit of a pounding in the second quarter of 2020. In the first quarter (Jan to Mar) we saw a decline of around 2.2% according to the UK Office of National Statistics (ONS). They have since estimated that in the second quarter (Apr to June) we have seen a decline of 20.4%.
The main impact incurred has been a direct result of the public health related freedom of movement restrictions imposed by the government and the consequential voluntary social distancing by the general populace. This point is reinforced by the fact that when there was a slight easing of the restrictions in June and July we saw a brief economic pickup.
Trying to get a slightly more positive take from all of this, whilst yes it is the largest UK economy contraction on ‘official record’, it should be borne in mind that the ONS only started recording such data in 1955 - so not all gloom and doom then!
The real difficulty now, as the Centre for Economics and Business Research (CEBR) have stated, is creating and maintaining any real confidence in consumer and business confidence in an economic recovery. With the MSM seemingly baiting for a second lockdown this is not going to be easy.
After the most recent and severe financial crisis that we endured in 2007-2008, when many of the financial markets were effectively closed, we witnessed the deepest UK economic recession since the end of World War 2. There ensued significant job losses and wage decreases to those who managed to stay in employment.
According to one source as reported by the BBC, the UK Institute for Employment Studies (IES), we may well see unemployment figures double those of that period with up to 735,000 redundancies before the year is over. https://www.bbc.co.uk/news/business-54125690
Yet, despite these high unemployment predictions, up to 8% nationally, the increased inflation and previously unseen levels of public sector borrowing the average forecast for UK GDP growth in 2020 is now still down to -10%, compared to -10.1% as predicted in August.
But as with all things in the markets many forces can come to bear, none more so than a further prolonged period of lockdown and movement restrictions being introduced by the government.
Finally, I thought it might be of interest and possibly stimulate some discussion by introducing a comparison table, as below, of some of the world’s major markets to demonstrate how they have fared during 2020, from the start of the year when all seemed relatively positive, through the lows of March around the world, to the current state of play.