UK economy shrinks 2% on COVID-19

WEDNESDAY, 13/05/2020 16:15:21

Britain's economy shrank 2% in the first three months of the year, rocked by the fallout from the COVID-19 pandemic, official data showed on Wednesday with analysts predicting even worse to come.

Britain's economy shrank two percent in the first three months of the year, rocked by the fallout from the COVID-19 pandemic. Photo: AFP/Tolga AKMEN

Gross domestic product shrank in the first quarter compared with the prior three months in the largest slump since the global financial crisis in the fourth quarter of 2008, the Office for National Statistics revealed.

Economic output dived by a record 5.8 per cent in March from the previous month, the ONS noted in especially grim news which sent the London stock market down more than one percent in early deals.

"March's GDP figures showed that the UK economy was already in freefall within two weeks of the (coronavirus) lockdown going into effect," said Capital Economics analyst Ruth Gregory.

"And with the restrictions in place until mid-May and then only lifted very slightly, April will be far worse."

Britain implemented its COVID-19 lockdown - which is only just starting to be slowly eased - on Mar 23.

"Widespread disruption"

"This release captures the first direct effects of the coronavirus pandemic, and the government measures taken to reduce transmission of the virus," the ONS said in a statement.

"There has been a widespread disruption to economic activity," it added.

The first-quarter performance was better than France and Italy, which shrank by 5.8 per cent and 4.7 per cent in the same period. Both nations were hit hard by the pandemic - but they began lockdowns earlier than the UK.

The Bank of England (BoE) had already warned last week that the economic paralysis could lead to Britain's worst recession in centuries.

"With the arrival of the pandemic, nearly every aspect of the economy was hit in March, dragging growth to a record monthly fall," said Jonathan Athow, deputy national statistician for economic statistics at the ONS.

"Services and construction saw record declines on the month with education, car sales and restaurants all falling substantially."

"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."

The BoE had forecast last week that UK output was likely to crash by 14 per cent this year.

Furlough extended

As the nation's COVID-19 crisis deepened, finance minister Rishi Sunak has unveiled a series of massive packages to help those affected.

The government stepped in to back up employee wages in a so-called "furlough" jobs retention plan, while it also gave tax holidays to businesses and boosted welfare payments.

Sunak on Tuesday announced a four-month extension to the furlough scheme, which will now run until the end of October.

The government says 7.5 million jobs have already been supported by the plan, which ensures employees can receive 80 per cent of their pay up to £2,500 (US$3,100) a month.

The BoE has also been at the forefront of economic firefighting, slashing its main interest rate to 0.1 per cent and pumping £200 billion (US$244 billion) into the UK economy to get retail banks lending.

Prime Minister Boris Johnson began this week to relax some of lockdown measures in order to help the economy, despite the rising death toll, but he has also stressed that great caution is needed.

Changes in the lockdown guidelines - which come into force on Wednesday - will allow people in England to spend more time outside, meet a friend at the park and view property for sale. However, they remain unable to visit relatives or friends at their homes.

Britain has seen more than 32,000 deaths in the outbreak -- the worst in Europe and second only to the United States - although there are indications that the true toll is higher.

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