The UK economy contracted by 2 per cent in the first quarter of 2020, official figures show, as the coronavirus forced the country to go into lockdown.
According to the Office for National Statistics (ONS), the decline in economic output over the three months to the end of March was the fastest since the global financial crisis of 2008.
The fall was driven by a record drop in activity in March, but only one full week of that month was spent in lockdown. Economists expect a much larger contraction to be experienced in 2020’s second quarter.
“This is the largest quarterly contraction in the UK economy since the 2008 global financial crisis and reflects the imposing of public health restrictions and voluntary social distancing put in place in response to the coronavirus (Covid-19) pandemic,” the ONS said.
“The decline in the first quarter largely reflects the 5.8 per cent fall in output in March 2020, with widespread monthly declines in output across the services, production and construction industries. While we advise against putting too much weight on one month's data, these data are helpful in understanding the broader picture.”
GDP quarter on quarter percentage change
Source: ONS
Analysts said the figures should not come as a surprise given the massive economic disruption that is being seen in the UK and around the world, but also pointed to the stimulus measures unleashed to support the global economy.
Hugh Gimber, global market strategist at JP Morgan Asset Management, said: “An enormous economic shock warrants an enormous policy response, and that is exactly what we are seeing from both the UK government and the Bank of England. The sharp contraction in UK Q1 GDP comes as little surprise, but does clearly highlight the magnitude of the challenge facing policymakers.
“Second quarter figures that cover a much longer period of lockdown will obviously be far worse. Yesterday’s decision to extend the furlough scheme is in line with the government’s aim to hold the economy in ‘suspended animation’, in the hope that lasting scars to the labour market can be minimised.
“While economic activity should improve from the second half of this year, it still appears that a rebound is likely to be very gradual and one that leaves GDP levels at the end of 2021 below where they finished 2019.”
Richard Pearson, director at investment platform EQi, agreed that a contraction was on the cards. But he added that the size of March’s drop still came as “a shock” and hints at what the full impact of the pandemic will look like.
“If we are searching for positives, industries such as IT support and pharmaceuticals did see some growth, and the impact on construction might be relatively short-lived as that sector is beginning to open up now,” he said.
“The government beginning to ease the rules for some retail outlets like garden centres and issuing back to work guidance for many businesses should help get the economy going again, but the impact on sectors like travel and hospitality will be much longer-lasting.”
“Despite the market fall in the past few weeks, feedback from EQi retail investors shows that most are fairly confident in the medium term. Investing is a long-term path, and those seasoned savers who have weathered past financial storms will know that they can get back on the right road in the long run to meet their end goal.
“Now isn’t the time to start changing tactics – it’s the time to keep a level head and hold out for eventual recovery.”