Coronavirus: British economy hit worse than previously thought

The UK economy shrank more than previously thought between January and March, contracting 2.2% in the biggest joint decline since 1979, official data show.

The Office of National Statistics (ONS) has revised its previous estimate of a 2% contraction, with all major economic sectors falling.

There was a significant economic impact in March, when the coronavirus pandemic began to take effect.

The data are presented while the prime minister is set for a major speech on the economy.

Jonathan Athow, ONS national deputy statistician, said: “Our more detailed picture of the economy in the first quarter showed that GDP shrank slightly more than estimated first.

“Government information has shown that health activities have fallen more than we showed earlier.

“All major sectors of the economy shrank significantly in March, with the effects of the pandemic.”

The first quarter contraction is now the biggest joint decline since the period from July to September 1979.

Athow said: “The sharp drop in consumer spending at the end of March has led to a noticeable increase in the households’ economy.” The new data showed a 6.9% contraction in GDP in March.

First-quarter figures show that the service sector – which accounts for about three quarters of the UK’s GDP – has shrunk a record 2.3%.

ONS said production fell 1.5% over the three-month period, driven by declines in manufacturing when factories temporarily closed, while there was a 1.7% drop in construction production.

GDP graphic

When compared to the same three-month period a year ago, the economy shrank 1.7%, worse than the previous estimate of a 1.6% contraction.

But as the coronavirus blockade only took effect on March 23, the second quarter will show the full impact on the economy.

Recent monthly data from ONS showed that the economy plunged 20.4% in April – the biggest drop in a single month since the beginning of records.

This contraction was three times greater than the decline observed during the entire economic crisis from 2008 to 2009.

Samuel Tombs, chief economist at Pantheon Macroeconomics in the UK, said the latest figures can be summed up in one line: “The biggest contraction in 40 years, even though the first quarter contained only nine days of blockade”.

The data “were just the prelude” to what is to come, he added.

However, while economists are prepared for a terrible set of second-quarter figures, Howard Archer, at the EY Item Club, believes that the strong contraction in April was probably the lowest point.

He predicted that the economy “would return to clear growth in the third quarter, with GDP expanding close to 10% from the previous quarter”, as blocking restrictions were more flexible.

Weaker finances

Later on Tuesday, Boris Johnson is ready to give an opening speech on the economy, with the promise of “recovering better”.

Speaking in the West Midlands, the prime minister will say that he wants to use the coronavirus crisis “to address the country’s major unresolved challenges”.

As part of what he hopes to call a “new deal”, Johnson will set out plans to accelerate £ 5 billion in spending on infrastructure projects.

Meanwhile, separate ONS data on the country’s finances showed that Britain’s current account deficit widened more than expected in the first quarter.

The balance of payments deficit – the difference between the value of the goods and services a country imports and the goods and services it exports – has increased to £ 21.1 billion, or 3.8% of GDP.

This means that the UK depends on inflows of money from abroad and leaves the pound vulnerable, according to Tombs.

“The pound sterling would almost certainly depreciate again if a second big wave of Covid-19 arises or if the UK and the EU do not sign a trade agreement or extend the transition period before the end of this year,” he said.

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