Smashed It


Image source: MichaelJayBerlin - Shutterstock

What's going on?

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.

Why should I care?

For markets: In deep Brit.

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.

The bigger picture: Ready, aim… 

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.

Originally posted as part of the Finimize daily email.

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