UK Economy Logs Biggest Contraction Since 2008
The UK economy contracted the most since the global financial crisis as measures adopted to reduce the transmission of the coronavirus took a toll on overall activity, data from Office for National Statistics revealed on Wednesday.
Gross domestic product fell 2 percent sequentially in the first quarter, which was the largest decline since the fourth quarter of 2008.
Economists had forecast a bigger fall of 2.5 percent, after stagnation in the fourth quarter of 2019.
“With the arrival of the pandemic nearly every aspect of the economy was hit in March, dragging growth to a record monthly fall,” Jonathan Athow, deputy national statistician for economic statistics at ONS, said.
On a yearly basis, GDP decreased 1.6 percent, marking the biggest contraction since late 2009. This was also slower than the expected decline of 2.1 percent.
Data showed that there was a widespread disruption to economic activity in the first quarter. Services output fell by a record 1.9 percent.
At the same time, industrial output fell 2.1 percent driven by a 1.7 percent drop in manufacturing. Production of transport equipment fell 20.5 percent with sharp reduction in motor vehicles and trailers industry.
Construction output decreased 2.6 percent sequentially in the first quarter, which was the largest fall since 2012.
The Bank of England last week cautioned that GDP could fall by 14 percent in this year before picking up in 2021.
There is little doubt that the worst is still to come, ING Economist James Smith, said.
The second quarter is likely to see a decline in GDP in excess of 10 percent, and with the vast majority of lockdown measures likely to persist into June, the risk is that the damage is greater, Smith noted.
The economist said it is now very hard to imagine a rapid ‘V-shape’ recovery, and a return to pre-virus levels of activity is not expected until 2022 at the earliest.
The expenditure-side breakdown of GDP showed that household consumption was down 1.7 percent in the first quarter, the largest drop since 2008. Reflecting declines in health and education spending, government expenditure dropped 2.6 percent in the first quarter.
Gross fixed capital formation fell 1 percent, marking the second consecutive quarter of decline. Business investment was flat.
In March, GDP declined 5.8 percent after contracting 0.2 percent in February. This was the biggest monthly fall since the series began in 1997.
Services and construction saw record declines in March. The index of services dropped 6.2 percent and construction fell 5.9 percent.
The index of production slid 4.2 percent and farm output dropped 0.2 percent in March.
Another report from the ONS showed that the visible trade deficit widened to GBP 28.12 billion in the three months to March from GBP 15.5 billion shortfall seen a quarter ago. The total trade balance swung to a deficit of GBP 4.7 billion.
In March, the visible trade deficit widened to GBP 12.5 billion from GBP 9.8 billion in February. Likewise, the total trade deficit increased to GBP 6.67 billion from GBP 1.54 billion.
Overall exports plunged 12.9 percent on month and imports decreased 3.5 percent in March.
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