The U.K. has one of the largest economies in the world. However, the economy of the U.K. contracted by 20.4% in the second quarter of the year compared to the previous three months.
Interestingly, gross domestic product (GDP) expanded by 8.7% during the first month of summer. In May, GDP expanded by 1.8%. As a reminder, in April GDP contracted by 20.4%. Interestingly, in the first quarter GDP contracted by 2.2%.
Notably, the second-quarter plunge is the worst on record. As stated above, the GDP shrank by 2.2%. It is worth noting that two consecutive periods of contraction mean the British economy is in a technical recession.
Services, construction, as well as producing all saw record quarterly falls. Sectors most affected by government restrictions experienced serious problems.
Fortunately, the economy started to recover in June. However, GDP in June remains a sixth of its level in February. Importantly, compared with the second quarter of 2019, the economy fell by 21.7%.
U.K.’s economy compared to other major economies
People should take into consideration that, the U.K.’s quarterly contraction is by far the deepest among all major economies. For example, the French GDP contracted by 13.8% in the second quarter of the year. Moreover, Italy’s GDP shrank by 12.4%,
At the same time, Germany’s GDP contracted by 10.1%, while Canada’s GDP dropped by 12%. Interestingly, the GDP of the largest economy in the world contracted by 9.5%. Furthermore, as in the case of the U.S. and other countries, Japan’s GDP contracted by 7.6%.
Notably, Britain’s hospitality sector, which accounts for around 5% of the GDP, suffered heavy losses due to the coronavirus pandemic.
Hopefully, economists expect a sharp rebound in the third quarter of the year. However, it will be hard to achieve this result if the U.K. won’t be able to avoid a second wave. As can be seen from the information stated above, GDP expanded by 8.7% in the last month of the second quarter. It means that the economy embarked on the path to recovery. Interestingly, the Bank of England expects an 18% jump in the third quarter.
However, a latent hit to the labor market, as well as the deadline of the Brexit transition period at the end of 2020, have the potential to affect the recovery in the fourth quarter.
Moreover, the chance that the U.K.’s economy will return to its pre-crisis level before the end of 2021 is low. Many companies, especially in sectors severely affected by the pandemic such as hospitality and recreational sectors are still struggling to deal with problems.
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