UK Economy's Biggest Ever Shrinkage

UK Economy's Biggest Ever Shrinkage

over 3 years ago2 mins

No, really: the UK economy revealed its biggest ever economic shrinkage on Wednesday, with the economy over 20% smaller in the second quarter than in the first 🇬🇧

What does this mean?

The UK kicked off the year with 2.2% shrinkage in its first quarter, and now a second quarter of negative growth has made it official: the country’s in its first recession in 11 years. And boy did it happen in spectacular fashion, with the UK suffering the worst second quarter of any major economy 😰 It shrank by nearly 60%, compared to the US’s 33% and the eurozone’s roughly 36%. That’s a helpful comparison, but there are limits to the figures: they’re “annualized”, which means they assume the second quarter’s drop versus the first will continue for the next three quarters. And that – touch wood – won’t happen.

Source: The Wall Street Journal
Source: The Wall Street Journal

Why should I care?

Economic data for April, May, and June that’s released in August isn’t particularly useful for investors, especially when the writing – mostly four-letter words – has been on the wall for months. So they’re not likely to have done much to their portfolios in response to Wednesday’s release 🤷‍♀️ And while the UK’s key stock market index did rise, it probably had nothing to do with the data: it predominantly features global firms, after all. But what might worry economists are the decade-high job losses that could hint at weak third and fourth quarters – a high that retail chain Debenhams sent even higher this week.

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The Bank of England said just last week that it’s ready to do more to support the UK economy, including cutting interest rates to encourage more spending and stimulate growth – and it might now be manning the battle stations ⚔️ It’s still got Brexit on its plate too, which means it might be forced to act sooner rather than later to combat its negative economic effects.

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