The UK economy shrank by two per cent in the first three months of 2020 due to the impact of coronavirus, official GDP data showed today.
The slump showed the UK economy’s contracted at its fastest rate since the height of the financial crisis in 2008.
The lockdown, which started on 23 March, saw the UK economy shrink a record 5.8 per cent that month alone.
And April’s data is likely to be far worse for UK GDP growth. Almost all shops except supermarkets and pharmacies remain shut in the coronavirus lockdown. And millions of workers are furloughed, with chancellor Rishi Sunak extending the job retention scheme to October.
UK GDP shrank in all the economy’s key sectors over the quarter, the Office for National Statistics (ONS) data showed.
The services sector suffered a record 1.9 per cent decline, the production industry posted a 2.1 per cent slump and there was a 2.6 per cent drop in construction.
March suffers record hit to UK GDP
Those sectors suffered their biggest hits in March as the UK economy shrank a staggering 5.8 per cent. All sectors were badly hit, though services posted the worst drop, a decline of 6.2 per cent.
Jonathan Athow, deputy national statistician for economic statistics, said: “With the arrival of the pandemic nearly every aspect of the economy was hit in March, dragging growth to a record monthly fall.
“Services and construction saw record declines on the month with education, car sales and restaurants all falling substantially.
“Although very few industries saw growth, there were some that did including IT support and the manufacture of pharmaceuticals, soaps and cleaning products.
“The pandemic also hit trade globally, with UK imports and exports falling over the last couple of months, including a notable drop in imports from China.”
CBI: Government stimulus crucial to UK economy recovery
The CBI’s chief economist, Rain Newton-Smith, warned the full impact of the coronavirus lockdown is still to come.
But she pointed to government measures such as the extended job retention scheme, and loans for small businesses, as being crucial to the UK economy’s eventual recovery.
“The range of financial support for businesses and workers provided by the government has been a lifeline for many firms so far,” she added. “These schemes are critical in keeping companies afloat and they will need to adapt as the economy restarts.
“Reopening our economy will be a gradual, complex process. The Ggovernment’s new guidance has helped, giving businesses some flexibility for their individual circumstances. Ultimately, keeping health at the heart of a recovery plan will be key to sustaining an economic revival.”
BCC: UK facing coronavirus recession
The British Chambers of Commerce said the second quarter will likely see UK GDP plunge by a worse margin. A consecutive quarter of decline would signal a full-blown recession.
The BCC’s head of economics, Suren Thiru, said: “The speed and scale at which coronavirus has hit the UK economy is unprecedented. [It] means that the Q1 decline is likely to be followed by a further, more historically significant, contraction in economic activity in Q2.
“While a swift ‘V-shaped’ economic revival as restrictions are lifted may prove too optimistic, government support can play a vital role in avoiding a prolonged downturn. The extension of the furlough scheme was a crucial first step, but more needs to be done to ensure that the right support is in place to deliver a successful restart of the economy.”
UK economy enters ‘freefall’
Capital Economics’ chief UK economist, Ruth Gregory, warned March’s record fall was only the tip of the iceberg.
“March’s GDP figures showed that the UK economy was already in freefall within two weeks of the lockdown going into effect,” she said. “And with the restrictions in place until mid-May and then only lifted very slightly, April will be far worse.
“The gradual lifting of containment measures suggest that April will probably prove to be the low point. Nevertheless, we think that it will be a long time before activity returns to pre-crisis levels.”
The dour outlook for the UK economy pushed the FTSE 100 lower today.
London’s blue-chip index fell almost one per cent this morning. However, the two per cent fall in GDP was better than a forecast drop of 2.6 per cent for the UK, Avatrade analyst Naeem Aslam said.
But he warned that “the worst is still about to come”.
“The question is how the Bank of England is going to look at this economic data,” Aslam said. “And if they will continue to rule out the negative rates and if they will expand their loose monetary policy further. But currency traders are more focused on forward-looking factors such as the Prime Minister’s three-stage plan to open the economy.”