How much will the UK economy shrink by in the second quarter?

    29 April 2020

    Around about the third week of July we are going to wake up to the most shocking economic statistic ever released in Britain: we will find out by how much the economy has shrunk in the second quarter of 2020. The sweepstake is open if you want to have a guess. Entries so far received range from 7.5 per cent (J P Morgan) and 12.5 per cent (Goldman Sachs) to 24 per cent (Capital Economics) and 35 per cent (Office of Budgetary Responsibility).

    Could the OBR be looking a little on the bright side? I wonder if there isn’t a better clue staring us in the face in our own bank accounts. For an insight into the extent of the cessation in economic activity, just have a look at what you spent in April and see how it compares with what you spent in previous Aprils. This is how the series goes for me:

    2017 £2092

    2018 £4556

    2019 £2807

    2020 £1123

    Obviously one person’s spending doesn’t make an economy. Britain as a whole did not experience a runaway boom in 2018: although I decided to have some new floorboards fitted in my house. But while it might seem ridiculous to try to measure the economy from your own personal experience, when I come to think of it some of the best signs of turning points in the economy that I can remember have come from my own casual observations. One Monday afternoon May 2008 I was driving to pick my son up from school when I suddenly asked myself: where is all the traffic? My next thought was that’s it: the recession has begun. When, a few months later, we had the figures for economic growth in the second quarter of 2008, it became clear that week was exactly when the recession had begun.

    A year later, in spring 2009, I was surprised to see so many people out enjoying themselves in the streets off Covent Garden. Again, it turned out to be a turning point: we were beginning to emerge from the recession. This year, on 9 March – two weeks before the lockdown began – I noticed in these same streets a remarkable lack of people. The train home was about a third less full than normal. Again, before there were any economic figures to prove it, it became clear that a very severe downturn had begun.

    I only spend one day a year shopping and that’s at Christmas, and it doesn’t go to waste. Never mind what I want to buy – frilly nightshirt for my wife from M&S or whatever – I take the trouble to visit every major store, just so I can spend a few moments watching how busy it is, and in particular how busy the cash registers are. It offers an advanced insight into the Christmas sales figures which will be released in early January, and which often take investors by surprise, even though the visible evidence was there on the High Street, had they bothered to look. I take note, too, of personal preferences. One week in 2007 I suddenly developed a dislike for Tesco, where I had done my weekly shopping for years. Had I had any Tesco shares at the time (I didn’t) it would have been a good ‘sell’ signal – the supermarket chains fortunes went into reverse very soon afterwards.

    There is a basis for this kind of signalling: if you suddenly experience a strong emotion for a shop, restaurant or other business, it’s likely that other people are having similar feelings. You are your own focus group. That is why I am inclined to take very seriously the evidence contained in my bank account and think that the collapse in the economy in the second quarter of this year – barring a very sudden and unexpected lifting of the lockdown – could be even greater than many fear, perhaps around 50 per cent or so. If I have spent less than half what I have averaged in recent Aprils there is a very strong chance that a lot of other people have done the same.