UK economy shrank by 2% in first quarter after record monthly plunge | Business

UK economy shrank by 2% in first quarter after record monthly plunge | Business


A record monthly plunge in activity meant the UK economy contracted by 2% in the first quarter of 2020, according to official figures.

Data from the Office for National Statistics revealed the immediate impact of the coronavirus lockdown, producing an unprecedented decline in output in March and the sharpest three-month contraction since the depths of the financial crisis in late 2008.

Although restrictions on businesses and individuals were only introduced in mid-March, the ONS said it was enough to cause a 5.8% plunge in activity in March.

All three main components of growth, services, production and construction, were affected by the fallout from the global pandemic – with factories, shops, restaurants, hotels and building sites all closed on government orders.

Ruth Gregory, UK economist at consultancy Capital Economics, said: “March’s GDP figures showed the UK economy was already in freefall within two weeks of the lockdown going into effect. And with the restrictions in place until mid-May and then only lifted very slightly, April will be far worse.”

UK GDP

Service sector output – which accounts four-fifths of GDP – declined by more than 6% in March, while production fell by 4.2% and construction by 5.9%.

Over the year to the first quarter of this year, the economy grew smaller by 1.6% – its fastest rate of decline since late 2009.

The contraction recorded in the first three months of 2020 was slightly smaller than the 2.5% expected by the City, but the ONS said its first estimate was more than usually shrouded in uncertainty owing to many businesses being shuttered.

A much bigger hit to activity is in store for the second quarter, with the Bank of England pencilling in a decline of 25% in GDP. Threadneedle Street is projecting 14% an annual decline in GDP.

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The ONS’s deputy national statistician for economic statistics, Jonathan Athow, 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.”



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