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The first full month of lockdown saw a -20.4% fall in UK GDP.

  • Monday, June 15, 2020

Rishi Sunak, Chancellor of the ExchequerThe Organisation for Economic Co-operation and Development (OECD) has recently predicted that the UK will suffer a greater annual hit on our economy, due to coronavirus, than other leading nations. Their report predicts a -11.5% fall in GDP and up to 2.4 million jobs lost. This prediction is almost twice the – 6.5% fall in global GDP the OECD is forecasting. The OECD is predicting that France will see a GDP fall of -11%, Italy -11% and Germany -7.1%.

The OECD further predicted that if Britain were to suffer a major second wave of the virus, then this could cause a further decline in GDP to -14.1%. The single wave prediction was for 9.1% unemployment and a deficit of 12.4% of GDP or £248bn. This in itself would be a peacetime record deficit. The second wave scenario rises the deficit to 14.2% of GDP or £284bn.

The OECD forecast came just days ahead of the Office of National Statistics (ONS) publishing figures for UK GDP in April. One may remember that the March GDP figures were down by -5.8% but better than many other developed nations. This may have been the result of us being later into lockdown compared to other European countries. The figures for April cover the first full month of lockdown and saw a -20.4% fall in UK GDP. This is the largest single month fall ever. These GDP figures will inevitably add to the pressure to ease lockdown measures further.

These figures are of particular concern as Britain went into the crisis with a very high level of employment. In January, employment stood at an all-time record high of 76.3% with 32.9 million people in work. Wage inflation was growing and the economy less affected by the global slowdown. However, some key aspects of the UK economy have been exposed through this crisis. The UK is primarily a service economy with 79% of GDP coming from this sector. As a result of global lockdowns, the fall off in trade, tourism, real estate, and hospitality has been particularly heavy.

The UK is thought to have acted on lockdown late. Evidence is showing that an earlier lockdown would mean an earlier exit and potentially less economic damage as well as a lower loss of life. New Zealand is certainly now benefiting from the swift actions of Jacinda Ardern’s government. The public are still concerned about the threat of coronavirus and a swift return to our normal way of life through socialising and spending may take time. The ‘stay at home’ message clearly worked and could now result in a lower level of spending and hiring which in itself means less spending. Businesses have been concerned that on-going school closures will hurt the education of children and prevent parents from returning to work.

April was always expected to have the worst economic results. Arguably, the most important figures will be the GDP figures and job numbers in June and July and August as the restrictions on lockdown are lifted and the results of the recovery clearer.

Currently 8.9 million workers are now on the governments furlough scheme. So far that has cost £19.6bn. The similar programme for the self employed has seen 2.6 million claims and so far, cost £7.5bn. Without this essential government intervention launched by Chancellor Rishi Sunak, household finances and consumption would have been dramatically worse.

If unemployment was to rise to 2.4 million or more, then the economy could take years to recover unless there is further major policy on taxation and spending aimed at boosting economic growth. Obvious examples of state actions to stimulate growth are a car scrappage scheme, cuts in VAT, investment into broadband, transport infrastructure, hospital and house building. It is clear that this crisis has exposed the UK to being over reliant on imports and that a more self-reliant manufacturing policy would be beneficial. This is also true in the technology and energy sectors with relevant examples being semiconductor and mobile network development.

Through all challenging periods there has always been sectors that prosper due to ever changing needs and demands. Active investment managements job is to give support to these new ventures.


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Chris Davies

Chris Davies

Chartered Financial Adviser

Chris is a Chartered Independent Financial Adviser and leads the investment team.