November 16, 2020

Chart of the Week: Why second English lockdown is set to affect GDP differently from the first

by Fathom Consulting.

UK GDP data rebounded strongly in Q3 2020, with quarter-on-quarter growth of 15.5%. This went most of the way to recovering the output lost in Q2 as a result of the COVID-19 pandemic.

Both the slowdown in Q2 and the recovery in Q3 were consumption-driven. Private consumption made up 64% of UK GDP in Q4 2019, before the crisis, and the first national lockdown caused a collapse in retail sales as households were unable to go out to spend disposable income. With the easing of restrictions through the summer, private consumption rebounded, accounting for two thirds of growth in Q3.

Government consumption, a relatively small component of GDP, had a negative impact on output in Q2. This is due to how the national accounts treated certain non-healthcare public sectors whilst in lockdown. Sectors such as education were assumed to produce lower output due to school closures, even though teachers were continuing to be paid, mechanically dragging on GDP. This mostly recovered in Q3 as schools, and other public sectors, reopened. England entered a second lockdown on November 5, joining Wales and Northern Ireland which had already imposed their own national restrictions. The impact of the English lockdown on UK GDP is expected to be lighter than the first because schools and many non-essential retail remain open, and most businesses are better adapted now to trading during economic restrictions.

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