U.K. Economy Shrinks At Fastest Pace Since 2008 Financial Crash

TOPLINE

The U.K. economy contracted 2% in the first three months of the year—the fastest pace since the 2008 financial crash—showing just how badly the coronavirus lockdown triggered at the end of March has disrupted economic activity.

KEY FACTS

What to watch for

The U.K.’s statistic agency has painted a bleak picture of the state of the British economy but today’s figures only show the impact of two weeks of the lockdown. The whole picture of the shutdown of all but essential businesses will emerge with the ONS economic output data for April.

Crucial comment

The U.K.’s finance minister, Rishi Sunak, told Sky News that the 2% contraction was no surprise as the U.K. faces severe effects of the virus. “That’s why we’ve taken the unprecedented action that we have to support people’s jobs, their incomes, livelihoods at this time, and support businesses, so we can get through this period of disruption and emerge stronger on the other side.”

Suren Thiru, head of economics at the British Chambers of Commerce, said: “The contraction in UK GDP in the first quarter underscores the negative impact that coronavirus had on the economy, even at its earliest stages. 

“The speed and scale at which Coronavirus has hit the UK economy is unprecedented and means that the Q1 decline is likely to be followed by a further, more historically significant, contraction in economic activity in Q2.”

Key background

The U.K. economy appears to have fared better than the Eurozone, which reported a 3.8% GPD contraction in the first quarter, but that may only because Boris Johnson’s government was slow to introduce the lockdown measures that Italy, and many other European leaders, introduced from March 9 onwards. Two weeks of ‘normal’ economic activity might have come at the cost of a prolonged shutdown, even as Europe reopens for business, while the U.K. has the highest death toll of any European nation. Last week, the Bank of England warned that the U.K. could fall into its worst economic slump in more than 300 years, and forecast the economy to shrink a whopping 25% in the second quarter, and 14% overall this year.

Tangent

Workers in the U.K. who are not able to work from home are returning to work on Wednesday, despite concerns from unions that they will not be adequately protected. It follows Prime Minister Boris Johnson’s decision to start easing the lockdown in England, in a move at odds with the devolved governments of Scotland, Wales and Northern Ireland.

Further reading

Bank Of England Warns Of Worst Economic Slump Since 1706 (Forbes)

GDP first quarterly estimate, UK: January to March 2020 (Office for National Statistics)

Full coverage and live updates on the Coronavirus