✈️ Download our latest Travel Playbook here. Unravelling the complexities of the travel industry in a globalised world. 🗺️

UK economy enters deepest recession on record

( 2 min read )

  • Go back to blog home
  • All posts
    All posts|Currency Updates
    All posts|Currency Updates|International Trade
    All posts|International Trade
    Blog
    Central Bank Meetings
    Charities & NGOs
    Currency Updates
    Currency Updates|In The News
    Ecommerce
    Fraud
    FX 101
    In The News
    International Trade
    Podcast
    Press Release
    Product Update
    Security & Fraud
    Special FX Reports
    Special Report
    Weekly Market Update
  • Latest

12 August 2020

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The UK economy officially entered into recession in the second quarter of the year, with the Covid-induced lockdowns triggering the largest slump in activity on record.

A
ccording to data from ONS released this morning, the UK’s GDP contracted by 21.7% year-on-year in the three months to June (20.5% quarter-on-quarter), albeit both came in slightly stronger than economists had pencilled in. This therefore pushes the UK economy into a technical recession, denoted as two consecutive quarters of negative economic growth, for the first time since the global financial crisis in 2009. There were, however, signs that the economy is already beginning to bounce back well from the downturn, with GDP expanding by a better-than-forecast 8.7% month-on-month in June.

Figure 1: UK GDP Growth Rate (2010 – 2020)

UK GDP Growth Rate (2010 - 2020)

Source: Refinitiv Datastream Date: 12/08/2020

Despite the positive surprises, the data makes for pretty grim reading – on an annual basis the UK economy shrank by a far greater amount than some of its peers in Europe, notably Germany (-11.7%), Italy (-17.3%) and France (-19%), albeit by not quite as much as Spain (22.1%). This is not at all unexpected given that the UK government has been far more cautious in easing lockdown measures than some of its peers. It is worth remembering that non-essential shops (15 June) and restaurants (4 July) opened much later in the UK than almost all of the rest of Europe, which is clearly reflected in today’s data.

The reaction in the pound this morning was very limited, with sterling stuck within the 1.30-1.31 range. We think this lack of reaction is due to both the lagged nature of the release and the slight irrelevance of the data, given that the extent of the downturns have been dictated almost entirely by the timing of the lockdowns. The real test for currencies will be how well respective economies bounce back from the contractions. Indicators so far suggest the UK recovery has got off to a decent start.

SHARE