As the UK plunges into its worst recession on record, investors have voiced concern over the economic future of the country.
Britain’s GDP fell by over 20% in the second quarter – the largest quarterly decline since comparable records began in 1955, official figures published on Wednesday revealed.
The scale of this contraction compared to other countries is cause for concern, according to Fidelity International investment director Tom Stevenson.
The UK suffered the worst GDP fall during the second quarter out of any other G7 economy, confirming the fact that hard times lie ahead on the road to recovery following the Covid-19 pandemic.
“No-one knows exactly what the recovery from coronavirus will look like – particularly with the potential for a second wave of infections and further local lockdowns – but it is likely that it will be a slow crawl towards pre-Covid levels with further government stimulus needed to restore sustained growth,” Stevenson said.
The GDP tumble coincides with when lockdown measures were implemented. The inevitable fall paints a “fairly bleak” picture, said Charles Hepworth, investment director at Swiss-based GAM Investments.
“The UK now has the unenviable moniker of being the worst performer in the G7 group of countries and perhaps this correlates with the handling of the coronavirus outbreak – either way sterling will remain a pretty unloved asset for the time being,” he added.
At New York-based BNY Mellon Investment Management, chief economist Shamik Dhar highlights that recession has been on the cards for a while.
Although “we are past the worst”, he said, the outlook is “highly” uncertain.
According to Nigel Green, chief executive of financial services firm deVere, investors will look elsewhere for stability.
“UK and global investors will be becoming increasingly nervous of this worrying situation and can be expected to take precautionary measures to insulate themselves against a potential fall in the value of UK-based financial assets,” he commented.
There are encouraging signs in the midst of the economic gloom, however.
Fidelity’s Stevenson said: “Household consumption and the housing market are already heading back to pre-pandemic levels. Much depends on whether rising unemployment creates a negative feedback loop into lower appetite to spend and invest.”
© 2020 funds europe
