UK economy shrinks by record 20.4% during severe lockdown

Britain’s economy shrank by a record 20.4% in April from March as the country spent the month in a tight coronavirus lockdown, official data showed on Friday in what is likely to be the bottom of the crash before a long and slow recovery.

In the three months to April, gross domestic product (GDP) contracted by 10.4% from the previous three month period, the Office for National Statistics (ONS) also said.

“In line with many other economies around the world, coronavirus is having a severe impact on our economy,” Chancellor of the Exchequer Rishi Sunak said.

Rishi Sunak met Sharon White, Chairperson of John Lewis, during his visit to a John Lewis department store in London on Wednesday.

The visit was to see what measures they have put in place to make the shop COVID-19 safe in order for it to re-open to the public on June 15, when all non-essential retail stores will be allowed to re-open, as easing of coronavirus lockdown restrictions continue to be lifted.

All non-essential shops in England have been told they could re-open as long as they comply with health and safety guidelines.

Government measures including a scheme to pay workers who are only temporarily laid off, alongside grants, loans and tax cuts for companies meant Britain, had “the best chance of recovering quickly as the economy reopens,” he said.

Next week much of Britain’s retail sector is due to reopen as long as shops follow social distancing rules.

In a slump that dwarfed previous downturns in Britain’s recent history, ONS also said the economy shrank by 24.5% compared with April last year.

Both readings were below the already unprecedentedly weak forecasts in a Reuters poll of economists.

“Record GDP falls in today’s figures. When taking April and March together the economy is 25% smaller. The economy in April the same size as it was in 2002,” ONS statistician Rob Kent-Smith said on Twitter.

The Bank of England (BoE) and the country’s budget office have warned that Britain could be heading for its deepest recession in three centuries this year.

France’s economy looks set to show a 15% quarterly contraction in April-June period, the Bank of France estimated on Thursday. German industrial output dropped by 17.9% in April from March, data showed this week.

However, the Organisation for Economic Co-operation and Development said on Wednesday that Britain was on course for the worst downturn among the countries it covers with the economy forecast to contract 11.5% this year.

Sunak said government measures including a scheme to pay workers who are only temporarily laid off, alongside grants, loans and tax cuts for companies, meant Britain had “the best chance of recovering quickly as the economy reopens”.

Output in the dominant services sector fell by 19.0% in April from March while manufacturing was down more than 24% and construction crashed by nearly half.

In the three months to April, the overall economy contracted by 10.4% from the previous three-month period, also the biggest fall on record since the ONS began to publish monthly economic data in 1997.

“Given the lockdown started to be eased in May, April will mark the trough in GDP. So we are past the worst,” Andrew Wishart, an economist with Capital Economics, said.

“While the trough in activity is now behind us, the fiscal cost of the collapse and the rise in the unemployment rate to over 8% that will result are only just starting to emerge.”

The BoE Governor Andrew Bailey said on Wednesday he could see some signs of an economic recovery as the coronavirus lockdown restrictions were lifted, but he warned there was still likely to be long-term economic damage.

The BoE is expected to announce a further increase of at least 100 billion pounds in its bond-buying firepower next week to try to stop the coronavirus crisis from inflicting further damage on Britain’s economy.

The central bank looks set to give itself at least another 100 billion pounds ($127 billion) in bond-buying firepower next week to try to stop the coronavirus crisis from inflicting further damage on Britain’s economy.

The BoE slashed interest rates to an all-time low of 0.1% in March as the country went into lockdown, but it says it needs time to weigh up the risks of going below zero like some other central banks.

That leaves bond-buying as its main weapon for tackling what could be Britain’s deepest recession in three centuries.

Reuters