UK economy is 0.2% smaller than expected in 2020

UK economy is 0.2% smaller than expected in 2020

The UK has been left as the only G 7 country with a smaller economy than in early 2020 due to a weaker than expected recovery from the coronaviruses, according to official figures that could further undermine the government's tax-cutting measures.

Before the prime minister and chancellor s meeting with the head of the government's independent forecaster on Friday morning, the Office for National Statistics ONS released figures showing that rather than the economy was 0.6% larger than in February 2020, a combination of a deeper recession during the epidemic and a weak recovery had left it 0.2% smaller.

A better than expected performance in the second quarter of this year, overturning a previous estimate of a 0.1% fall to a 0.2% increase and reversing an assessment that the UK was in a recession by June, was not enough to boost GDP growth in the second quarter of this year, as it was not enough to recover from the first lock downs in 2020 that brought large parts of the economy to a standstill.

The Office for Budget Responsibility, the head of the Treasury's independent forecaster, Richard Hughes, would have to take a tough stance on the impact of further borrowing on the public finances, according to analysts.

France and Germany recovered strongly enough to be larger than they were in February 2020.

Despite the better news on the performance of the economy in the second quarter, the overall picture is that the economy is worse than we thought, said Paul Dales, an economist at Capital Economics.

It was before the full drag from the surge in inflation and the leap in borrowing costs have been felt. The Bank of England said earlier this month that the UK was already in a recession, after it forecast a fall in GDP of 0.1% in the third quarter, leading to two consecutive quarters of negative growth, but the ONS estimate of growth in the second quarter shows that while the economy is depressed, it is unlikely to enter a recession until the end of the year.

On Friday, Kwasi Kwarteng published an economic plan that he said would spur growth by cutting taxes.

However, investors responded to the mini-budget by selling the pound and offloading British government bonds, increasing the interest bill paid by the Treasury.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said the figures showed that the damage caused by Covid 19 and the economy's ability to grow was larger than previously thought.

He said that the revisions will cause the OBR to revise its estimates for future potential GDP.

The recent turmoil in British financial markets has highlighted the UK's large current account deficit. Since the financial crisis of 2008 and the Brexit vote, the amount of imports exceeding the value of exports has worsened since the financial crisis of 2008 and the fall in the value of the pound that makes exports cheaper.

The current account gap in the April-June period decreased to 33.8 bn, or 5.5%, from a 43.9 bn deficit in the first quarter, which was revised down from an earlier estimate.

The January-March deficit remained the biggest on record, the ONS said, revealing the difficulties that UK exporters are having in finding markets for their products and services.