GDP first quarterly estimate, UK: April to June 2020

• UK gross domestic product (GDP) is estimated to have fallen by a record 20.4% in Quarter 2 (Apr to June) 2020, marking the second consecutive quarterly decline after it fell by 2.2% in Quarter 1 (Jan to Mar) 2020.

• When compared with Quarter 4 (Oct to Dec) 2019, UK GDP decreased by 22.1% in Quarter 2 2020.

• Despite the weakness in Quarter 2 2020, there was some pick up in June as government restrictions on movement started to ease; see GDP monthly estimate, UK: June 2020.

• There have been record quarterly falls in services, production and construction output in Quarter 2, which have been particularly prevalent in those industries that have been most exposed to government restrictions.

• Private consumption accounted for more than 70% of the fall in the expenditure measure of GDP in Quarter 2 2020, falling by 23.1%; there were also notable falls in gross capital formation and government consumption.

Gross domestic product (GDP) growth is the main indicator of economic performance. There are three approaches used to measure GDP:

• the output approach
• the expenditure approach
• the income approach

Further information on all three approaches to measuring GDP can be found in the Guide to the UK National Accounts.

In producing a balanced estimate of GDP, we reconcile information on the output, expenditure and income measures of GDP. In our first quarterly estimate, output tends to paint a more reliable picture of what is happening overall in the economy, and so balancing adjustments are applied to the expenditure and income components of GDP where required to align to output; these tend to be applied to components where data content is comparatively weak, or estimates are prone to revision.

Data in chained volume measures within this bulletin have had the effect of price changes removed (in other words, the data are deflated), except for income data, which are only available in current prices.

Impact of the coronavirus (COVID-19)

This release captures the direct effects of the coronavirus (COVID-19) pandemic and the government measures taken to reduce transmission of the virus. We have faced an increased number of challenges in producing quarterly estimates of UK GDP for Quarter 1 (Jan to Mar) 2020 and Quarter 2 (Apr to June) 2020. More detailed information on the challenges and the steps taken to mitigate those can be found in Coronavirus and the effects on UK GDP.

As a result of these challenges, GDP estimates for Quarter 1 and Quarter 2 2020 are subject to more uncertainty than usual and are likely to have larger than usual revisions in subsequent releases.

UK gross domestic product (GDP) is estimated to have fallen by a record 20.4% in Quarter 2 (Apr to June) 2020, marking the second consecutive quarterly decline after GDP fell by 2.2% in the previous quarter (Figure 1). This is the largest quarterly contraction in the UK economy since Office for National Statistics (ONS) quarterly records began in 1955, and reflects the ongoing public health restrictions and forms of voluntary social distancing that have been put in place in response to the coronavirus (COVID-19) pandemic. In level terms, real GDP was last lower in Quarter 2 2003. Compared with the same quarter a year ago, the UK economy fell by 21.7%.

Recent analysis explains our latest position on how we are looking to communicate GDP, including how we will continue to acknowledge “technical” recessions as comprising of at least two consecutive quarters of contracting GDP. While it is still true that these early estimates are prone to revision, we prefer to focus on the magnitude of the contraction that has taken place in response to the coronavirus pandemic. It is clear that the UK is in the largest recession on record. Our latest estimates show that the UK economy is now 22.1% smaller than it was at the end of 2019, highlighting the extent of this recession.

The decline in the second quarter was driven by the 20.0% fall in output in April 2020, the biggest monthly fall on record reflecting widespread monthly declines in output across the services, production, and construction industries. There has been a phased easing of lockdown restrictions through May and June, including the reopening of non-essential shops. This is reflected in the latest figures, which show some rebound in June, where GDP increased by 8.7% on the month. More information on the monthly profile of GDP can be found in the GDP monthly estimate, UK: June 2020 release.

Several countries have published first estimates of GDP for the second quarter of 2020, including the United States, Germany, France and Italy amongst the G7 countries. These initial estimates highlight how the coronavirus pandemic and the response to it has impacted upon the global economy, with record declines recorded in all of these countries.

Given the difference in timings of the imposition of lockdown measures between countries, it is more useful to consider the cumulative fall in GDP in the first half of this year. Figure 2 shows cumulative GDP growth in the first half of 2020 for a selection of advanced economies. Compared with the end of 2019, the UK fell by a cumulative 22.1% in the first six months of 2020. This fall was slightly below the 22.7% seen in Spain but was more than double the 10.6% fall in United States GDP over this period.

The larger contraction of the UK economy primarily reflects how lockdown measures have been in place for a larger part of this period in the UK compared with these other economies. The Oxford COVID-19 Government Response Tracker captures this information by collecting information on government policy responses to create a "stringency" index. According to this measure, the UK had an average stringency of 73 in the second quarter – the second highest of the countries shown in Figure 2.

Nominal GDP fell by 15.4% in Quarter 2 2020, its largest quarterly contraction on record. The implied GDP deflator represents the broadest measure of inflation in the domestic economy, reflecting changes in the price of all goods and services that comprise GDP. This includes the price movements in private and government consumption, investment and the relative price of exports and imports.

The implied deflator strengthened in the second quarter, increasing by 6.2%. This primarily reflects movements in the implied price change of government consumption, which increased by 32.7% in Quarter 2 2020. This notable increase occurred because the volume of government activity fell while at the same time government expenditure increased in nominal terms.

Statistical guidance recommends measuring many aspects of government output directly, by counting activities, rather than by adjusting expenditure for price movements. Compared with the same quarter a year ago, the implied GDP deflator increased by 7.9%, a strengthening from the previous quarter.

There have been record quarterly falls in services, production and construction output in Quarter 2 (Apr to June) 2020, which have been particularly prevalent in those industries that have been most exposed to the restrictions imposed because of the coronavirus (COVID-19) pandemic. Services output decreased by 19.9% in Quarter 2 2020, while production output fell by 16.9%, and construction output contracted by 35.0% (Figure 3).

Services

Following a fall of 2.3% in the first quarter, services output decreased by 19.9% in Quarter 2 2020. The quarterly fall reflects declines in the vast majority of industries, most notably accommodation and food services, wholesale and retail trade and repair of motor vehicles, human health and social work activities, and education (Figure 4). These industries accounted for 52.4% of the total contraction in services output in Quarter 2. The only positive contribution came from public administration and defence, which grew 0.4% in the second quarter.

The decline in services output in the second quarter largely reflects the 18.5% fall in April 2020 following the introduction of government restrictions at the end of March. Although there was some pickup in May and June, the levels of output were still well below the February level before the main impacts from the pandemic were felt, resulting in the largest quarterly fall in services output on record.

The monthly movements through the quarter are mirrored in the June IHS Markit UK Services PMI (PDF, 153KB), which notes the improvement in business conditions across the UK service sector in June compared with April, which experienced a survey record low because of “business closures, shutdowns among clients or shrinking sales due to a slump in non-essential spending”. The weakness is also echoed in the latest Bank of England Agents’ Summary of Business Conditions, which reported that spending on consumer services was significantly weaker than a year ago and noted the likely negative impact of social distancing measures on activity in the leisure and hospitality industries.

Output of accommodation and food services fell 86.7%, while output of wholesale and retail trade and repair of motor vehicles fell 20%. The latter was driven by motor vehicles, which saw output fall by 63.0% in the second quarter because of a fall in new car registrations. The weakness in the retail sector is reflected in footfall data from the Office for National Statistics (ONS) Faster Indicators publication, which shows that footfall in retail parks, shopping centres and high streets was on average 70% lower in Quarter 2 2020 compared with the same period a year ago.

Meanwhile, output of human health and social work activities fell 27.2%, reflecting cancelled operations and lower accident and emergency attendance, while output of education fell by 34.4% as a result of school closures throughout the lockdown period. For more information on health and education estimates in the second quarter of 2020, please refer to the Expenditure section of this release.

Production

Following a fall of 1.5% in the first quarter, production output fell by 16.9% in Quarter 2 2020, marking the fifth consecutive quarterly decline. The decline was mainly the result of the 20.4% monthly decline in production output in April, which was driven by a fall in manufacturing output. The quarterly contraction in output reflects declines in all four production sub-sectors (Figure 5).

Manufacturing output fell by 20.2% in Quarter 2 2020, signalling its fifth consecutive quarterly contraction. External survey evidence also shows the decline in manufacturing output. The IHS Markit UK Manufacturing PMI index reached a record low in April, reflecting declines across the consumer, intermediate and investment goods sub-industries, which were linked to “the consequences of the COVID-19 outbreak, particularly regarding company closures, weak domestic and global demand and labour shortages (following job losses and staff furloughs)”.

There were widespread falls in most manufacturing industries in Quarter 2 (Figure 6). The most notable was the manufacture of transport equipment, which fell by 49.1% following widespread factory shutdowns during the lockdown period. According to data from the Society of Motor Manufacturers and Traders (SMMT), UK factories produced 381,357 cars in the first six months of 2020, the worst six-month performance since the first half of 1954. Additionally, the latest Bank of England Agents' Summary of Business Conditions noted that "widespread shutdowns caused manufacturing output to fall sharply” in the second quarter, highlighting severe economic disruption in the aerospace, automotive, heavy engineering and oil and gas industries.

Following a decline of 2.1% in the first quarter, mining and quarrying output fell by 7.3% in Quarter 2 2020, reflecting coronavirus-related shutdowns as well as reduced demand for oil and gas. Output of electricity, gas, steam and air fell by 8.8% in Quarter 2 2020, reflecting a fall in industrial demand for electricity caused by the temporary closures of businesses. Water supply and sewerage production fell by 5.6% as a result of a decline in industrial and commercial waste because of factory closures in April and May.

Construction

Following a decline of 1.7% in the first quarter, construction output fell by 35.0% in Quarter 2 2020, reflecting declines in both new work, and repair and maintenance. Most notably, private new housing declined by 51.2% as housebuilding activity was affected by various social distancing measures that were put in place in response to the coronavirus pandemic.

New orders decreased by a record 51.1% in Quarter 2 2020, reflecting falls in both all other work and new housing, which fell by 51.9% and 49.0% respectively. The latest Bank of England Agents' Summary of Business Conditions notes that construction output “is still significantly lower than a year ago due to weak private sector demand”, highlighting the spillover effects this could have “on other sectors, such as companies that provide furnishings and fittings”.

The decline in construction output in the second quarter was mainly driven by the 40.2% monthly decline in construction output in April, which was caused by record declines in all types of work. This is corroborated by the April IHS Markit UK Construction PMI, which reported “a rapid downturn in overall construction output” following business closures in April.

There have been large movements in all types of expenditure in Quarter 2 (Apr to June) 2020, most notably private consumption, which accounted for more than 70% of the fall in gross domestic product (GDP) in the second quarter (Figure 7).

Private consumption

Household consumption fell by 23.1% in Quarter 2 2020, the largest quarterly contraction on record. Some types of household consumption are likely to be particularly affected while social distancing is in place, especially those types of spending that are more reliant on physical interaction with other people or those that relate to travel. The decline was driven by falls in spending on net tourism, restaurants and hotels, and transport.

The latest official retail sales figures show a 9.5% fall in the volume of retail sales in the three months to June, with declines across all store types except food stores and non-store retailing. The latest Bank of England Agents’ Summary of Business Conditions states that “spending on consumer services and non-food goods was significantly weaker than a year ago, though online sales of some products were strong”. The BRC Retail Sales Monitor shows that total sales returned to growth in June “as a result of lockdown measures being eased, and pent-up demand being released” though noting that the clothing, footwear, and health and beauty industries were still struggling.

The decline in transport spending is in line with Department for Transport (DfT) figures, which indicate lower than normal usage across motor vehicles, National Rail, the London Underground (Transport for London (TfL)) and bus travel in the second quarter. This is likely a result of the impact of the coronavirus (COVID-19) pandemic on work-related spending, reflected in lower levels of spending on fuel and public transport.

Gross capital formation

Gross fixed capital formation (GFCF) fell by 25.5% in the second quarter of 2020. Business investment made the largest contribution to the fall, which fell by 31.4% (Figure 8). Excluding the effects of a reclassification in 2005, this is the largest quarterly fall on record. By comparison, business investment fell at most by 9.8% during the 2008 global economic downturn.

Respondent-led evidence suggests the contraction reflects the adverse impact of the coronavirus on cash flows for businesses. Businesses also faced an elevated level of uncertainty, reflected in the UK’s Economic Policy Uncertainty Index, which was on average five times higher in the second quarter compared with the same period a year ago.

The latest Deloitte CFO Survey stated that the coronavirus is a top risk facing businesses, adding that chief financial officers’ (CFOs’) assessment of external uncertainty “remains higher than at any point before the COVID-19 pandemic”.

The Quarter 2 2020 Decision Maker Panel noted that the largest hits to investment are expected in “businesses providing highly consumer-facing services”, which is “consistent with the sector expecting to experience the largest and most persistent impact on sales”. The latest Bank of England Agents’ Summary of Business Conditions states that companies have “mostly cancelled or postponed non-essential investment to preserve cash buffers” though some businesses have “redirected investment to finance social distancing measures and facilitate remote working”.

There was a record fall in private sector dwellings investment, and a fall in associated transfer costs in the second quarter. This reflects lower activity in construction and the property market during the lockdown period. Meanwhile, government investment increased by 11.4% in Quarter 2 2020, reflecting planned additional spending in various areas and possibly some additional spending related to the coronavirus. However, it should be noted that these are initial estimates for Quarter 2 2020 and that further updates are expected.

Alignment and balancing adjustments are typically applied to the inventories component to help balance the different approaches to GDP – more detail on these can be found in the Quality and methodology section of this bulletin. Therefore, the unadjusted data provide a better understanding of the change in the inventory position of businesses. Here, the underlying data show a substantial decrease of £2.5 billion in stocks being held by UK companies in Quarter 2 2020 (Table 2). This was led by a fall in the level of stocks held within the wholesale and retail trades, though partially offset by increases in stock levels held in mining and quarrying, which increased as a result of falling oil prices.

Evidence from external surveys on business stockpiling was mixed. According to the June IHS Markit UK Manufacturing PMI, “the current weak economic backdrop led to lower levels of raw material purchasing and further depletion of stocks of purchases and finished goods”, adding that the pandemic was causing “substantial disruption to supply chains, leading to material shortages, vendor shutdowns and transportation issues.” However, the June CBI Industrial Trends Survey reported that stock adequacy in the manufacturing sector remained above its long-run average in the three months to June.

Government consumption

The coronavirus (COVID-19) pandemic and subsequent measures to reduce transmission of the virus had a significant impact on government consumption in the second quarter. In nominal terms, government expenditure increased by 14.1%, while in volume terms government expenditure fell. These contrasting movements caused a large increase in the implied deflator, or implied price change, for government consumption.

Non-market services consumed primarily by individuals, such as health and education, are measured directly by measuring the change in the volume of activity. Following a fall of 4.1% in the first quarter, the volume of government consumption decreased by 14.0% in Quarter 2 2020, reflecting declines in health and education activity. In volume terms, government healthcare consumption fell by 30.1%, while education fell by 25.1% in the second quarter.

The fall in estimated education consumption was a result of school closures across the UK, with schools closed to all except for vulnerable pupils or those whose parents or guardians are critical workers. Teaching staff continued to support children learning at home, and our estimates take this into account. For more information on our methods please refer to Coronavirus and the impact on measures of UK government education output.

Meanwhile, the volume of government expenditure on public administration and defence increased by 2.6% in the second quarter.

Net trade

The impact of the coronavirus pandemic on the global economy has led to large falls in gross trade flows in and out of the UK, reflecting a marked fall in global trade demand as well as how restrictions have disrupted international supply chains. The latest World Trade Monitor estimates that world trade has fallen by 17% this year. Additionally, data on shipping activity from the Office for National Statistics (ONS) Faster Indicators publication show that average daily ship visits fell by 12% in the second quarter compared with the previous quarter.

However, the 23.4% decline in import volumes has been more pronounced than the 11.3% fall in export volumes. This partly reflects larger declines in imports of machinery and transport equipment – caused by road vehicles, and fuels – driven by oil, compared with exports of these goods. There have also been particularly volatile movements in non-monetary gold over this period.

Following a trade deficit of 0.2% of nominal GDP in Quarter 1 2020, today’s estimates show that the UK posted a trade surplus of 4.0% of GDP in the second quarter (Figure 9). However, it should be noted that this figure is inclusive of precious metals. When these are excluded, the UK had a trade surplus of 1.9% of nominal GDP in the latest quarter. For more detailed analysis on Trade movements in Quarter 2 2020, please refer to the UK trade release.

Trade in goods exports fell by 3.3%, while trade in goods imports fell by 20.2% in Quarter 2 2020. These declines partly reflect movements of precious metals, which include non-monetary gold. The net balance of precious metals increased by £11.4 billion in the second quarter. The fall in trade in goods imports also reflects lower imports of fuel, machinery and transport equipment, and miscellaneous manufacturers.

Trade in services exports fell by 19.6% because of falls in travel, air transport and other business services. However, exports of education-related travel – which includes university tuition fees – have not been affected as significantly. Travel restrictions that have been implemented on a global scale have also significantly reduced the flow of tourists to and from the UK, which have been particularly marked on the UK imports of those services. Services imports fell by 30.2%, particularly those of travel services, other business services and air transport.

External survey evidence points towards weakened exports activity in the second quarter. The June IHS Markit UK Manufacturing PMI stated that “new export business fell for the eighth straight month, reflecting low market confidence and the ongoing impact of COVID-19”. According to the June CBI Industrial Trends Survey, export orders books in the manufacturing sector fell to an all-time low, reflecting a significant fall in external demand. Meanwhile, the latest Quarterly Economic Survey by the British Chambers of Commerce reported that the balance of firms reporting increased export sales was “substantially lower than the worst quarter of the 2008-09 recession”.

Nominal gross domestic product (GDP) fell by a record 15.4% in Quarter 2 (Apr to June) 2020, following a fall of 1.2% in the previous quarter (Figure 10). Taxes less subsidies fell by 83.7% in Quarter 2 2020, reflecting a decline in tax revenue and an increase in subsidies. The increase in subsidies primarily relates to the Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS) and incorporate estimates from the updated OBR coronavirus reference scenario (XLS, 3.41MB) published on 14 July 2020. There was also an increase in transport subsidies granted to rail and bus services in the second quarter. Transactions are recorded on an accrual basis within the national accounts, so for reporting purposes the transaction is registered at the point when it was adjudged to take place. There was also a fall in revenue from Value Added Tax (VAT) as well as from fuel, tobacco, stamp, and air passenger duties.

Compensation of employees (CoE) fell by 2.2% in Quarter 2 2020, the largest quarterly fall since the 2008 economic downturn. The decline reflects a 1.6% decrease in wages and salaries, driven by the private sector, as well as a 4.9% decrease in employers' social contributions.

The impact of the Coronavirus Job Retention Scheme (CJRS) is one reason why the fall in wages and salaries has been less marked than other types of income, including gross operating surplus (GOS) of corporations. This fell by 24.1%, the third consecutive quarterly fall and the largest quarterly drop on record. It is worth noting, however, that there is more uncertainty around this estimate than other components of the income measure of GDP, see Quality and Methodology for more information.

According to the latest EY UK profit warnings report (PDF, 1.314MB), UK companies issued 165 profit warnings in Quarter 2 2020, a 139% increase from the previous year. The report stated that 84% of profit warnings cited the impact of the coronavirus pandemic, adding that coronavirus stresses were spreading from “the lockdown-impacted sectors of the first quarter to sectors exposed to the knock-on impacts of changing corporate and consumer behaviour”.

A number of other economic indicators were published on 12 August 2020, these include:

• GDP monthly estimate, UK: June 2020
• Coronavirus and the impact on production and services, UK: June 2020
• Construction output in Great Britain: June 2020, new orders and Construction Output Price Indices, April to June 2020
• UK trade: June 2020
• Data for gross fixed capital formation (GFCF) by sector and asset, revision triangles and a real-time database

All data in this bulletin are seasonally adjusted estimates. Non-seasonally adjusted data are available within the UK Economic Accounts (UKEA). These data can be downloaded directly from the UKEA dataset and on the UKEA main aggregates dataset table. Data published in the UKEA reflect data as published on 31 March 2020 and are consistent with the data in this release.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Gross domestic product (GDP) QMI.

The UK National Accounts are drawn together using data from many different sources. This ensures that they are comprehensive and provide different perspectives on the economy; for example, sales by retailers and purchases by households.

Important quality information

There are common pitfalls in interpreting data series, and these include:

• expectations of accuracy and reliability in early estimates are often too high
• revisions are an inevitable consequence of the trade-off between timeliness and accuracy
• early estimates are based on incomplete data

Very few statistical revisions arise as a result of “errors” in the popular sense of the word. All estimates, by definition, are subject to statistical “error”.

Many different approaches can be used to summarise revisions; the “Accuracy and reliability” section in the Gross domestic product (GDP) QMI analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.

Reaching the GDP balance

The different data content and quality of the three approaches – the output approach, the expenditure approach and the income approach – dictates the approach taken in balancing quarterly data. In the UK, there are more data available on output in the short-term than in either of the other two approaches. However, to obtain the best estimate of GDP (the published figure), the estimates from all three approaches are balanced to produce an average, except in the latest two quarters where the output data take the lead because of the larger data content.

Information on the methods we use for Balancing the output, income and expenditure approaches to measuring GDP is available.

Alignment adjustments, found in Table M of the GDP first quarterly estimate data tables in this release, have a target limit of plus or minus £2,000 million on any quarter. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed.

To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the components of GDP where required. They are applied to the individual components where data content is particularly weak in a given quarter because of a higher level of forecast content.

Coronavirus (COVID-19) impact on response rates

Figure 11 and Figure 12 highlight a decline in response rates for surveys that feed into the GDP first quarterly estimate for Quarter 2 (Apr to June) 2020. We have undertaken a significant amount of work to ensure that the effect on the quality of estimates in this release are mitigated as much as possible.

These include focusing resources on main respondents and industries, methodology reviews including but not limited to seasonal adjustment, forecast and imputation, and the utilisation of additional sources of data (in quality assurance). More information on the measures taken can be found in Section 6 of Coronavirus and the effects on UK GDP.

We normally apply a multiplicative bias adjustment for early construction output monthly estimates. This bias adjustment is based on historical data. As the response rates for June 2020 are lower in comparison with months prior to February 2020 and no comparable historical data are available at the time of the first estimate for a reference month, no bias adjustment has been applied for June 2020. This is the same approach for all months since March 2020.

From Quarter 2 2020, we have ceased the Quarterly Operating Profits Survey, which was previously the main basis for estimates of private non-financial corporations’ gross operating surplus (PNFC GOS). The survey is known to have several methodological weaknesses that can result in a higher degree of uncertainty around this component of the Income measure of GDP compared with other components. To address this weakness, we are investing in work to make greater use of administrative data to more accurately measure movements in PNFC GOS. Until this is in place, we will use a mixture of external indicators and evidence, along with information from the other components of GDP to inform our best estimate of PNFC GOS.

Quarterly Stocks Survey temporary expansion

The Quarterly Stocks Survey (formerly Inquiry) is used in the compilation of the changes in inventories component. To address users’ concerns about the sample size of the survey and the potential impact on quality, we temporarily increased the sample size from 5,500 to 9,500 businesses for Quarter 2 (Apr to June) 2019. We have continued to boost the sample in subsequent quarters and will continue to do so until further notice.