Economy contracted two per cent in the three months to March, official figures say
The Office for National Statistics [ONS] has revealed that the UK economy shrank by two per cent in the first quarter of the year, the quickest decline since the 2008 financial crash.
The decline, shown in the first official growth figures since social distancing came into force, shows the consequences of just one week of lockdown in the UK, after the prime minister triggered the restrictions on March 23, bringing about a record fall.
The second quarter is expected to yield far more severe results, as senior UK economist Ruth Gregory of Capital Economics said that the economy went into “freefall” within just two weeks of lockdown.
Gregory said: "With the restrictions in place until mid-May and then only lifted very slightly, April will be far worse."
A double-digit fall in UK GDP is expected to be announced in the second quarter, while the Bank of England has already forecast the sharpest annual economic contraction on record for this year.
Nevertheless, the two per cent contraction in Q1 is not as grave as analysts had expected, having forecast a decline of 2.6 per cent for the first quarter of 2020.
According to the ONS, widespread decline across the services, manufacturing and construction industries brought about by the lockdown were chiefly responsible.
Output in the UK’s dominant services sector dropped by a record 1.9 per cent, which the ONS said had had a hand in bringing about the “largest quarterly contraction since the global financial crisis.”
It added that the decline “reflects the imposing of public health restrictions and voluntary social distancing put in place in response to the Covid-19 pandemic.”
The government has already sought to ease some lockdown restrictions in the UK, encouraging workers in some key industries such as food production, construction, and manufacturing to return to work if they cannot work from home.
Meanwhile, chancellor Rishi Sunak has extended the government’s Job Retention Scheme to the end of October.
Even if the lockdown is lifted by September, the Bank of England is expecting the economy to shrink by 14 per cent over 2020, with a rebound to come in 2021 with 15 per cent growth.
The economy is expected, therefore, to rebound far more quickly than post-2008, when it took five years to return to levels seen prior to the recession.