Economy fears as the UK faces worst recession in 300 years
THE UK economy contracted at the fastest pace on record in March, it emerged yesterday, as the coronavirus crisis puts Britain on the brink of the worst recession in 300 years.
The Office for National Statistics (ONS) revealed activity plunged 5.8% in March in the biggest monthly fall since records began in 1997.
The March tumble sent gross domestic product (GDP) down 2% overall in the first quarter – the biggest fall since the end of 2008 when Britain was at the height of the financial crisis.
The latest figures show the first direct effect of the Covid-19 pandemic on the UK economy after the country was placed in lockdown to control the virus’ spread.
Jonathan Athow, deputy national statistician for economic statistics at the ONS, 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.”
He added: “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.”
But with the lockdown only coming into place on March 23, the second quarter will show the full hit on the economy after the UK ground to a standstill.
Experts said the first quarter data suggested the economy could contract by up to 20% between April and June as the full effects of the lockdown are captured.
The March fall is the worst since records began in 1997, while the firstquarter drop is the biggest since the UK economy contracted by 2.1% between October and December in 2008 in the recession that followed the financial crisis.
It also compares with zero growth in the final three months of 2019.
But the ONS cautioned there was more uncertainty than normal over its first GDP estimate, given the challenges of collecting economic data amid the lockdown.
And there is far worse pain to come, with the Bank of England last week warning coronavirus could see the economy plunge by a further 25% in the second quarter and fall by 14% overall in 2020 – the worst annual fall since records began.
The Bank also said Britain’s unemployment rate could hit 9% between April and June as the lockdown impacts on firms across the economy.
London’s FTSE 100 Index fell 1.3% after the GDP data and amid concerns over a second wave of coronavirus cases in countries that have started to reopen post-lockdown.
Chancellor Rishi Sunak has said it is “very likely” that the UK will face a “significant recession” as a result of the coronavirus crisis.
He told the BBC: “A recession is defined technically as two quarters of decline in GDP.
“We’ve seen one here with only a few days of impact from the virus, so it is now very likely that the UK economy will face a significant recession this year and we are in the middle of that as we speak.”
The Institute of Directors said the official data was a “sobering first glimpse of the economic turmoil caused by the outbreak”.
George Brown, at Investec Economics, added: “While the figures look ugly today, they are just the tip of the iceberg.”
The Resolution Foundation thinktank warned that the first-quarter drop was an “ominous sign of things to come”.
James Smith, research director at the think-tank, said: “The lockdown was only in place for seven working days in the first three months of the year.
“But it was still enough to bring about the biggest quarterly economic contraction since the peak of the financial crisis and the weakest single-month change on record.
“With the country in full or partial lockdown well into the second half of the year, the grim economic milestones hit in the latest data will be shattered next time around.”
James Smith, an economist at ING, said the economy could take two years to recover.
“The prospects of a ‘V-shape’ recovery have long since faded, and we don’t expect the size of the UK economy to return to pre-virus levels
until at least 2022,” he said.
The ONS figures showed all sectors were hit in the first quarter, with a 1.9% drop in services output marking the largest quarterly fall on record.
Production output also fell by 2.1% in the first quarter, driven by declines in manufacturing, while construction output dropped by 2.6%.
The first-quarter contraction comes after already weak growth at the end of 2019, when GDP was flat in the fourth quarter.
Trade data also showed the UK deficit widened to a far higher-than-expected £6.7bn in March from £1.5bn in February, with the ONS saying UK imports and exports fell over the last couple of months, including a notable drop in imports from China.