UK economy suffers the most in Europe in second quarter

GDP fell 20.4 per cent quarter on quarter, with widespread contractions across all sectors

                                

The UK economy suffered a bigger loss than any other major European economy in the second quarter, falling by a fifth and entering into its deepest recession on record. 

Official data showed that gross domestic product fell 20.4 per cent quarter on quarter, with widespread contractions across all sectors. 

The figures confirm that the pandemic has hit the UK harder than other developed economies. After the second-quarter contraction, the decline in UK GDP since the end of 2019 is double that in the US and second only to Spain in Europe.

The UK’s underperformance was partly due to the length of its lockdown. It was also partly because the consumer-facing services sector hardest hit by social distancing has a bigger weight in GDP, accounting for 80 per cent of the economy. 

A recovery from the depths of the lockdown gained momentum in June, with output growing 8.7 per cent month on month. This means GDP has grown 11.3 per cent since its April low, but remains 17.2 per cent beneath its level in February, before the coronavirus crisis hit. 

The FTSE 100 stock index outperformed its European peers on Wednesday morning, rising 0.7 per cent, as investors homed in on signs of a rebound.

The services sector fell 19.9 per cent quarter on quarter, accounting for three quarters of the fall in GDP. With much of the hospitality and leisure sectors still closed in June, its recovery has been slower than that of other sectors. Services output was up 7.7 per cent month on month, largely due to a strong recovery in car sales.

This compared with an 11 per cent rebound in manufacturing. Construction was hardest hit over the quarter as a whole but has also bounced back faster, with a month-on-month jump of 23.5 per cent in June. 

The UK Office for National Statistics set out record quarter-on-quarter falls in household spending, driven by the slump in expenditure on tourism, hospitality and transport, and in government spending. 

The latter was due to school closures and the postponement of non-urgent healthcare. 

FUTHER READING: The UK has cut 730,000 jobs since the start of the coronavirus lockdown

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