• Dr Gerard Lyons

Putting today's UK GDP news in context

  • Today we had two pieces of economic news, for the second quarter (Q2 that covers April to June) and monthly data for June.

  • They show the same story from different time slots.

  • Let's put them in the context of the pandemic.

  • The economy was sluggish at the end of 2019, when the December General Election took place.

  • The pandemic and first lockdown hit the economy in March 2020, with activity already stopping ahead of the official lockdown.

  • Then the economy fell off the edge of a cliff in Q2 last year, and hit bottom in May 2020

  • There was then a recovery to a mini-peak last October, before activity weakened again during the second and third lockdown.

  • However, in those lockdowns there was far more activity than in the first lockdown and thus the hit to the economy was milder.

  • As one of many examples, construction activity was shut down in the first lockdown but not during the second or third.

  • The economy though was weak at the beginning of this year and because of that GDP fell in the first quarter, down 1.6% versus Q4 of last year.

  • The economy started to turn around again in February this year.

  • As we have moved through this year, the picture has been one of gradual recovery.

  • So in interpreting today’s GDP data it is important to bear in mind that comparisons with the same period last year are heavily distorted.

  • GDP data for Q2 rose 4.8% compared with the first quarter of this year. Compared to Q2 last year, it was a huge rebound.

  • Perhaps more importantly from a policy perspective, the economy was 4.4% below its level of the final quarter of 2019, which was the last full pre-pandemic quarter.

  • Today also saw monthly GDP figures released for June.

  • In June the economy rose 1.0% versus the previous month.

  • This was the fifth successive monthly rise and leaves GDP, on a monthly basis 2.2% below February 2020, which was the last pre-pandemic month.

  • So the economy is recovering as coronavirus restrictions are lifted.

  • Being below its pre-pandemic levels is seen as indicating spare capacity.

  • Later this year the economy will have returned to its pre-pandemic levels, but remember if there had not been a pandemic we would have expected the economy to grow so it will be below where it might otherwise have been.

  • Also later this year, as government schemes end there may be some who move from furlough to unemployment. Although unemployment at 4.8% is 1% higher than pre-pandemic, it is far better than initially feared.

  • Also many small firms may emerge from this crisis nursing higher debts as they have taken advantage of the government loan schemes that will now need to be repaid in coming years.

  • A few months ago I forecast the economy would grow 7.8% this year, which at the time was much higher forecast than the consensus, although these are now much higher than they were earlier this year.

  • In its recent Monetary Policy Report, the Bank of England forecast the economy would grow 7.25% this year and expects growth of 6% in 2022 and 1.5% in 2023. Last year the economy contracted 9.75%.


  • This image below, from the Office for National Statistics press release shows the path of the economy in level terms.