The UK has officially entered a recession after reporting negative GDP growth for a second consecutive quarter.
The UK suffered a decline of 2.2% in the first three months of the year and a further decline of 20.4% the following three months ending with June compared to the previous quarter.
The Office for National Statistics said the decline in GDP was driven by the wide-scale closure of shops, restaurants, hotels and schools but as the restrictions on movement started to ease June saw GDP growth of 8.7% from the month before.
It is still worth noting though that the 8.7% growth is well below figures seen in the beginning of the year.
It is accepted that the pace of recovery is likely to be a slow one, however some of the temporary measures such as the cuts in VAT and stamp duty tax are meant to incentivise spending and achieve faster growth over the coming months.
It remains to be seen the extent of the impact such tax cuts could have on the spender’s behaviour i.e. consumers.
In my view this would depend on the class of goods/services we’re looking at – we’ll more likely see an increase in spending on goods/services that are considered necessities – consumer staples – as opposed to those that are discretionary in nature.
It is important to keep in mind that measures such as tax cuts will be operating in parallel to a rising unemployment rate and a government job support scheme, meaning that, overall, consumers could have less to spend.