The UK economy entered recession for the first time since 2009: having contracted by 2.2% in the first quarter of 2020, the economy shrank at a record rate of 20.4% during the second quarter.
- Brexit talks made little progress in August
- Retail sales rose but footfall is down
- The Government came under pressure to extend its job retention scheme
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The UK economy entered recession for the first time since 2009: having contracted by 2.2% in the first quarter of 2020, the economy shrank at a record rate of 20.4% during the second quarter. The Office for National Statistics (ONS) reported that private consumption accounted for more than 70% of the fall, and the services sector experienced its worst quarterly drop on record.
“The services sector experienced its worst quarterly drop on record”
The FTSE 100 Index rose by 1.1% in August, while the FTSE 250 Index climbed by 5.1%, boosted by a strong performance from shares in sub-prime lender Provident Financial; although the company reported a loss at its half-year results, it is expected to benefit from a surge in demand for sub-prime credit caused by the pandemic.
There was little progress in Brexit trade talks during the month, and EU Brexit negotiator Michel Barnier said that a deal “seems unlikely” as both sides failed to agree over issues including the “level playing field”, fisheries, and state aid rules. While the UK’s negotiator David Frost criticised the EU for being “unnecessarily difficult”, M. Barnier said the UK was “wasting valuable time”. The transition period ends on 31 December, and if a deal has not been approved, the UK will have to trade with the EU under World Trade Organisation (WTO) rules.
Retail sales continued to improve in July, rising for a second straight month to achieve annualised growth of 3.2%. However, the British Retail Consortium (BRC) found that footfall remained down, and warned that some retailers are “hanging by only a thread in the face of rising costs and lower sales”. The Confederation of British Industry (CBI) reported that retail employment fell at its most rapid rate since February 2009 during the year to August, and the pace of job losses is expected to increase. Looking ahead, retailers are likely to remain cautious as household incomes weaken.
The number of people in work fell at its fastest rate since mid-2009 over the three months to July, with the number of employees on payrolls down by around 730,000 compared with March 2020. The ONS reported that around 7.5 million workers were temporarily away from work in June, and the Government has come under pressure from business groups and trade unions to provide additional support or to extend its furlough scheme, which is scheduled to finish in October.
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