Investment Clock insights

UK GDP: Still in the ‘V’


Melanie Baker 

11 September 2020

Broadly as expected, the pace of recovery cooled a bit in July to 6.6%M after 8.7%M,  still leaving Q3 on track for a strong rebound. That robust pace of growth reflected continued reopening of the economy, with notable jumps in output in sectors like education and accommodation/food services.  
Even if August and September GDP growth was zero (very unlikely), that would leave Q3 up 13% after falling 20% in Q2 (assuming no back revisions to the data).  The level of GDP in July was still nearly 12% below February though, so there is still some distance to go before the level of output is back to pre-crisis levels. 
Manufacturing grew 5.2%M after 9.3%M, construction 17.6%M after 23.6%M and services 6.1%M after 7.7%M.
Looking at some of the detail, there was particularly strong growth in areas like education (as some children returned to school), wholesale / retail / repair (strong retail sales data had already suggested output in this sector might be above February levels) and accommodation / food services which grew 140.8% (though as the Office for National Statistics point out, the level of output there is still 60.1% lower than in February).  
Helped by temporary policy support from the VAT cut and Eat Out to Help Out, the UK looks likely to have seen another robust month of growth in August.  However, with East Out to Help Out over and the furlough scheme winding down, there remains a question mark over how strong the recovery will remain over the next few months. That is especially the case now that we have Covid cases rising again in the UK and social distancing rules tightening rather than loosening.  Meanwhile, Brexit uncertainty, let alone the global outlook, is likely to weigh on an investment recovery for now. 

Broadly as expected, the pace of recovery cooled a bit in July to 6.6%M after 8.7%M,  still leaving Q3 on track for a strong rebound. That robust pace of growth reflected continued reopening of the economy, with notable jumps in output in sectors like education and accommodation/food services.  

Even if August and September GDP growth was zero (very unlikely), that would leave Q3 up 13% after falling 20% in Q2 (assuming no back revisions to the data).  The level of GDP in July was still nearly 12% below February though, so there is still some distance to go before the level of output is back to pre-crisis levels. 

Manufacturing grew 5.2%M after 9.3%M, construction 17.6%M after 23.6%M and services 6.1%M after 7.7%M.

Looking at some of the detail, there was particularly strong growth in areas like education (as some children returned to school), wholesale / retail / repair (strong retail sales data had already suggested output in this sector might be above February levels) and accommodation / food services which grew 140.8% (though as the Office for National Statistics point out, the level of output there is still 60.1% lower than in February).  

Helped by temporary policy support from the VAT cut and Eat Out to Help Out, the UK looks likely to have seen another robust month of growth in August. However, with East Out to Help Out over and the furlough scheme winding down, there remains a question mark over how strong the recovery will remain over the next few months. That is especially the case now that we have Covid cases rising again in the UK and social distancing rules tightening rather than loosening.  Meanwhile, Brexit uncertainty, let alone the global outlook, is likely to weigh on an investment recovery for now. 

Source: Refinitiv Datastream as at 15/07/2020

Source: Refinitiv Datastream as at 15/07/2020

To find out more of Melanie’s thoughts on the current outlook, read her latest Investment Clock Economic report ‘Recovery enters a new phase’ 

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.