This is the biggest fall in quarterly GDP on record, with more than a fifth in the second quarter of 2020,and the UK has officially entered a recession with two successive quarters of negative growth. The decline is steeper than for France and Germany although this may in part be explained due to the UK’s later lockdown as the virus likely reached the UK later. Amongst the major European economies only Spain has suffered comparably with a slightly larger fall in output over the first half of the year.
Of other major world economies so far the US has contracted by a similar extent to Germany, while China’s recovery in the second quarter was such that it grew over the first half of the year.
GDP grew by 8.7% in June according to monthly data from the Office for National Statistics (ONS) (although this data can be highly volatile). An ONS Deputy National Statistician, Jonathan Athow commented, “the economy began to bounce back in June with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover. Despite this, GDP in June still remains a sixth below its level in February, before the virus struck”. Business confidence is improving, and in July for the first month since February business activity increased across a majority of businesses in London as reported in the indicator section of this publication. There remains, though, considerable uncertainty around the future path of the economy. The Bank of England (BoE) in its latest quarterly Monetary Policy Report has become more positive in its assessment of the prospects for the UK economy. It is estimating in its central forecast a contraction for the whole of 2020 of -9.5%, and a recovery of 9.0% growth in 2021, and the economy exceeding its level in 2019 by 2022. In contrast, the National Institute of Economic and Social Research (NIESR) is a little more pessimistic in its forecast. It expects the economy to contract by -10.1% this year, and not to have recovered its 2019 level in 2022. The differences in the forecasts will reflect in part views on how the pandemic will evolve, and the effectiveness of public policy measures in tackling the public health and economic consequences. Notably, NIESR has concerns about scarring in the labour market, and the risk of rising long-term unemployment. In mitigation, it has argued for the extension of the Coronavirus Job Retention Scheme from October 2020 to June 2021.
The Centre for Cities High streets recovery tracker is reporting that footfall in London is recovering the slowest of all the cities across the UK, and in July was at 23% of its level before the pandemic. One of the reasons people are staying at home is that homeworking is more common in London than any other region, the ONS estimates that 57.2% of workers in the Capital are doing this some of the time. Bus and tube travel has declined dramatically in the last few months, although it has recovered slightly recently. The recovery may also not be even across all areas of London. This is particularly acute for the central local authorities of Camden, the City of London, and Westminster. Thirty-one per cent of the capital’s employee jobs of 5.2m, or 1.58m in 2018, are here while 6% of London’s population of 8.9m in 2018, or 0.53m, live here according to ONS figures. That is, there were over 1m people working in central London, who did not live there, and 0.5m such people in the City of London alone. This is before taking into consideration international and domestic tourists. Although 24% of respondents to a YouGov survey for the GLA in July reported that they were likely to travel into central London in the first week in August, 66% said they were not likely. Around half of the 66% thought they would have travelled into central London if it had not have been for the virus.
A third of Londoners are not currently travelling into central London who would otherwise have done this. Additionally, there are fewer commuters from outside London, and fewer tourists visiting London. The sums of money not spent by people not coming into London have the potential to be very large. The Centre for Economics and Business Research has calculated that the pandemic has resulted in £2.3 billion of spending in shops, pubs and eateries near London employment hubs being lost or displaced between March and June.
London’s economy is estimated to have fallen by 18.7% annually in the second quarter of the year, following an annual contraction of 1.5% in Q1 2020 z London’s real GVA registered the deepest contraction of the historic series in Q2 2020 (-18.7% annually), which adds to the -1.5% annual growth rate seen in the first quarter of the year. Both rates are GLA Economics estimates. This historic negative shock caused by the Covid-19 outbreak takes place after London’s real output grew by 5.4% in 2019 – according to ONS data – which is the highest growth rate since 2007 despite last year’s Brexit-related uncertainty. The UK’s real GVA annual growth rate for Q2 2020 was -21.7% – also the lowest rate of the historic series – which adds to an annual fall by 1.8% in the first quarter of the year. z London’s real GVA quarterly estimates for both the period Q1 1999 to Q4 2012 and the two most recent quarters have been produced by GLA Economics. Estimates for the intervening period are outturn data from the ONS, which does not publish quarterly estimates for London’s real GVA prior to 2013.
Unemployment rates in London and the UK Title In the second quarter of the year, London’s unemployment rate remained broadly unchanged – despite the very large output fall – due to the new Coronavirus Job Retention Scheme created by the Government Bullets • More than 235,200 residents 16 years and over were unemployed in London in the period April-June 2020. • The unemployment rate in London was 4.6% in that period, broadly unchanged compared to the first quarter of the year (4.7%). Thanks to furloughing on the Coronavirus Job Retention Scheme London’s unemployment rate did not soar in Q2 2020 when there was a very large fall in output. A small increase in London’s inactivity rate (0.4pp) might have had an impact as well. The claimant count in London increased by 145% between March and June 2020. • Similarly, the UK’s unemployment rate was 3.9% in the second quarter of 2020, the same rate as in the first quarter.