The latest ONS data shows that GDP in August increased by 2.1% m/m after a 6.4% m/m increase in July. Coupled with expansionary purchasing manager indices in September (56.5) and October (52.9 flash), the statistical evidence suggests that while the strength of the recovery may be fading, the direction of travel remains positive, for now.
Simple arithmetic might also persuade you that the UK is already out of recession (‘V’ shape I). Even if the economy did not grow in September, that is, monthly GDP is 0% (unlikely), then Q3 2020 quarterly GDP would still come in at +15.2% q/q. Such is the nature of statistical base effects. Oxford Economics is forecasting 15.5% q/q growth in Q3 (OE, 23 October). ‘Officially’ we must wait until 12 November for the ONS to announce formally the Q3 2020 GDP results and declare the recession to be over. Despite the fading recovery, OE still forecast positive quarterly growth of 1.6% in Q4 followed by weak, but positive growth of 1.0% q/q in Q1 2021. Given the 31 October lockdown, these latest forecast numbers are likely to be downgraded and a modest double dip recession is a possible.It is clear that in month-on-month growth terms, the initial ‘V’ shape recovery is over and further recovery will not be without challenges. Despite progress, the economy in August was still almost 10% smaller than in January (‘V’ shape II). This means ipso facto fewer jobs. Furthermore, the economy is not expected to return to its January level until early 2022. At the end of August, real annualised GDP (£2.0 trillion) was still down by £200 billion against the end of February (£2.20 trillion).
The furlough scheme that was scheduled to end in October has been extended for one month, and despite further Government support, unemployment will rise, even with further job retention schemes. Will there be a double dip recession in Q4 2020? The tone of the Chancellor’ recent announcement of the now postponed Job Retention Scheme and further emergency support measures suggests an implicit assumption that his ‘policy tweaks’ are intended to sustain the existing recovery and not designed to stave off a new downturn. Given that office-based sectors (government, health, education, business and financial services, information and communications) are expected to remain relatively stable, much will depend on the consumer economy in the run-up to Christmas.
Retail sales (ex-fuel) in September surprised to the upside rising by 6.4% y/y. Monthly store sales growth was positive (+2.3% y/y) for the first time in 2020, and e-commerce was up 33.2% y/y. Clearly, e-commerce is set to boom and hence those retailers with multi-channel sales will fare better than those without, but given the latest restrictions, the immediate short-term performance of the hospitality sectors and non-essential retailing is another matter. All considered, including the new lockdowns, look for a possible mild Q4 2020 GDP contraction, and a far less inspiring recovery over Q1 with considerable downside risks.
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About the Author
Chief Economist, and Head of Research of Forecasting at Colliers International, Walter Boettcher has over 20 years UK and European property industry experience. Highly renowned for his publications on Brexit, Economic Outlook & Trends, and Property Cycles, Walter has redefined how research can be used to support agency and professional services business development.
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