UK Economy: Modest, but steady recovery in the summer of 2020 after a severe recession in the spring

The Covid-19 pandemic has led to a deep recession in the United Kingdom. The lockdown of the economy has been somewhat stricter and some containment measures have remained in effect longer than in several other countries. As elsewhere, travel, tourism, hospitality, entertainment and many other sectors of the economy were hard hit. In the first quarter of 2020 (that includes the month of March when the lockdown started), gross domestic product (GDP) is estimated to have fallen by 2.2 percent according to the Office for National Statistics.  One can expect that the decrease was even more dramatic in the second quarter of 2020. I expect a contraction of perhaps 10 to 15 percent, but obviously, we have to wait until the data will be published. Most businesses have now reopened again. However, the turnover of many firms might be lower than usual. Since forecasts or scenarios are of course associated with very high levels of uncertainty at the moment, I still do not publish a detailed economic forecast. The economic recovery will continue during this summer. In addition, various large fiscal and monetary policy measures support economic recovery. In particular, the government plans to considerably increase spending on infrastructure projects (if properly implemented, this may boost the recovery in 2021). For the whole year of 2020, I still expect a severe recession and a contraction of the economy of around 11 percent and unemployment will strongly increase (the same rough forecast as in my June economic outlook). This will hopefully be followed by a relatively strong rebound of around 8 percent in 2021. In a more dramatic scenario (for instance, if there is a second wave of the pandemic), the contraction in 2020 will be at around 14 percent. As I mentioned above, such forecasts are obviously associated with a high degree of uncertainty. Especially, there is the risk of a second wave of the pandemic. In addition, it is still not clear how exactly Brexit will occur and whether it will cause additional risks to the economy – at least in the short term. At the global scale, worldwide tensions could increase – especially between the United States and China.

I plan to publish a more detailed economic forecast for the United Kingdom in September or October 2020. At the moment, there is too much uncertainty.

While I use several models in my forecasts, my published numbers are also strongly influenced by my personal experience and judgment. One may say that my forecasts are produced by interactions between me and the machine.