It's official. Output in the UK economy dropped by over 20% in the second quarter. The actual figure, year on year, was 21.7%, that's slightly better than our forecasts, since start of lock down.
Construction output fell by 36%. Manufacturing output was down by 22%. Service sector output fell by 21%. The leisure sector, accommodation and food, was down by almost 90%. Lock the doors and turn off the lights. Don't be too surprised if revenues take a hit.
So what happens next? Our multi sector model of output, GDP(O), phases in the gradual return to normality. We expect a V shaped recovery. Recoveries always are or have been, V shaped, since formal records began in 1948.
The "Eat Out To Help Out" has confirmed families will return to restaurants. Retail sales confirm consumers will return to high streets. The fans are desperate to return to the terraces, as football, cricket and rugby return to the screens. Car sales were up in July, house sales and prices are rising. The government is committed to infrastructure spending. The Bank of England is committed to liquidity in the banking system, Money supply, M4 based is rising in double figure growth. No return of austerity. The mantra is a return to normality. Strong growth will return in 2021. The year on year comparisons will have such a low base for comparison.
This year, our base case scenario is for an output drop in Q3 of 10% and a 5% drop in the final quarter of the year. For the year as a whole the economy will be down by 10%. This is in line with the Bank of England latest forecasts and the mainstream consensus view from the HM Treasury panel.
In the final quarter, travel and tourism will continue to impact on the leisure sector. Manufacturing will face the overhang of Brexit uncertainty. Construction, retail and distribution will remain down compared to prior year. The government really needs to set out the policy for travel and tourism. The industry is warning, a full recovery may take years yet ...
The big challenge is the probable increase in jobs lost. Unemployment is likely to increase to 2.5 million to 3.0 million by the end of the year, unless the furlough scheme is extended. This week, Yo!Sushi announced the closure of 19 of 69 outlets, with the loss of 250 jobs. Fashion chain Jigsaw filed a proposal to close 20 stores with 200 redundancies. The restructuring in retail continues. There will be more to follow the CVA route ...
The Saturday Economist
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