The UK economy shrank at the fastest pace since the 2008 financial crisis in the first quarter of 2020, as the coronavirus lockdown severely impacted all areas of business.
The Office for National Statistics (ONS) said the economy contracted by 2% from January to March. This followed 0% growth in the final quarter of 2019.
Today’s announcement from ONS showed that the decline was driven by a record fall in March, and reflects just one full week of nationwide lockdown – which is still in effect. Economic forecasters believe that a bigger economic contraction will happen in the next quarter’s announcement.
Commenting on today’s GDP figures, 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.”
Responding to latest official GDP figures, showing GDP feel in March by 5.8%, Tej Parikh, Chief Economist at the Institute of Directors, said: “These figures provide a sobering first glimpse of the economic turmoil caused by the outbreak.
“It’s difficult to overstate the upheaval, which hasn’t been restricted to sectors like retail and hospitality, but has reverberated across different industries. In many cases, demand is still stagnant or falling, and we expect firms’ activity levels to remain depressed for the foreseeable future.
“While countless companies have made adjustments with admirable speed, many will find it difficult to operate at anything like normal capacity under social distancing rules. The furlough scheme has undoubtedly staved off redundancies, and the new flexibility provides businesses a better chance of rebooting.
“The Treasury will need to continue innovating to kickstart any recovery. The Government’s loan scheme provided ready cash, but now leaves many firms saddled with debt. Unless this is managed well, it will drag on business investment for long after the lockdown ends.”
Rain Newton-Smith, CBI Chief Economist, said: “The UK economy was hit hard by the necessary shutdown at the end of March, and recent data suggests the full impact of that difficult decision is still yet to come.
“The range of financial support for businesses and workers provided by the government has been a lifeline for many firms so far. 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 Government’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.”