Weekly Economic And Financial Commentary – August 17, 2020

Reflecting the first direct effects of COVID-19, and the government measures taken to reduce transmission of the virus, UK GDP contracted by 20.4% YoY Q2 2020 (representing the deepest decline in economic activity ever recorded), marking the second consecutive YoY decline after a 2.2% YoY contraction in Q1 2020. Over Q2, both services output and Household consumption fell by a record 19.9% and 23.1%. There were significant contractions in production, construction, gross fixed capital formation and government consumption. Separate data showed 1.34 million people were unemployed in Q2 2020, which is 9,000 more than a year earlier but 10,000 fewer than Q1 2020 with unemployment rate unchanged from the previous quarter at 3.9%.

In the US, data released last week showed consumer prices rose 1.0% YoY (from 0.6% YoY in June) and rose 0.6% MoM (same as June). Increases in food prices accounted for half of the expansion in July, with the food index rising 4.1% YoY (down -0.4% MoM) to offset decline in the energy index of 11.2% YoY (+2.5% MoM). Separate data showed that U.S export and import prices both expanded by 0.7% MoM and 0.8% MoM in July from 1.4%% MoM and 1.2% MoM in in June respectively. Elsewhere, following the ongoing re-opening across most states in the US, retail sales data for the month of July rose 1.2% MoM (slower than 8.4% MoM increase in June), while industrial output rose by 3% MoM (slower than 5.7% MoM in June). While retails sales are now above pre-covid levels, industrial output is still below its pre-coronavirus levels.