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11 September 2020

Upward UK GDP Trend Continues

Ben Staniforth, Investment Research Analyst, Redmayne Bentley
 
The UK economy continued its post-pandemic bounce as the easing of lockdown measures and significant financial stimulus from both the Bank of England and the Treasury seemed to pay off. However, the growth rate did slow.

The Office for National Statistics showed that the UK economy expanded by 6.6% in July, an impressive rate under normal conditions but somewhat slower than what was expected and what was achieved during the month of June, standing at 6.7% and 8.7% respectively. The data will be encouraging for businesses, especially those on the high street who have endured a torrid year. While the slowdown from June is not ideal, many brick and mortar stores will view positive growth, no matter how strong, as both an optimistic sign and essential to their survival.

While it is encouraging to see the UK return to growth, looking back at the first and second quarter declines this year, we can see the devastating effect the pandemic had on the economy and how quickly things turned from bad to worse. What may be surprising, however, is that during the 2008 financial crisis, the UK’s economy shrunk by no more than 2.1% in any given quarter, yet during the COVID-19 crisis, however, the economy has fallen 2.2% and 20.4% so far this year. A worrying sign indeed, although given the speed of the recovery so far, many are anticipating a shorter overall downturn.

A second wave and multiple hotspots in areas such as Yorkshire and Birmingham among others, could curtail the ability to return to sustainable growth. New measures in place from Monday 14th September will limit the number of people allowed to meet in any one place to six as the government grapples with rising case numbers. The question remains, can we responsibly return to ‘normal’ while the virus is still active? Recent data would suggest not, in which case finding a vaccine becomes paramount.

Please note that investments and income arising from them can fall as well as rise in value. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Upward UK GDP Trend Continues
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