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Masked man walks past parade of shuttered shops
A man wearing a protective face mask walks past a parade of shuttered shops in Shoreditch, east London. Photograph: Dominic Lipinski/PA
A man wearing a protective face mask walks past a parade of shuttered shops in Shoreditch, east London. Photograph: Dominic Lipinski/PA

Britain is facing 'significant recession', says Rishi Sunak

This article is more than 3 years old

UK economy shrank by 2% in first quarter after record monthly plunge, ONS data shows

The chancellor, Rishi Sunak, has warned that Britain is facing a “significant recession” after the government’s latest growth figures showed that the first few days of the country’s lockdown caused a record drop in economic activity.

Figures from the Office for National Statistics showed that just nine days of harsh restrictions on businesses caused output to fall by 5.8% in March, and by 2% in the first three months of the year.

The ONS said the hit to the economy in late March had affected almost every sector of the economy and meant that output had dropped by almost as much in a single month as in the 18-month decline during and after the financial crisis of 2008-09. With people ordered to stay at home from late March, all three main components of growth – services, production and construction – were affected.

Travel agencies registered a 50.1% month-on-month decline in activity, while air transport dropped by 44% from February. Food and accommodation was down 31.1% on the month, while the “other services” category – which includes businesses such as hairdressers – fell by 18.1%.

The 2% fall in gross domestic product was smaller than that suffered by some other countries, but analysts said it reflected the fact that the UK went into lockdown at a later date and that there had been some hoarding in the days preceding the lockdown. The ONS said its first estimate of GDP was less certain than usual because of the difficulty in collecting data while so many businesses were shuttered.

Sunak said that while the UK was yet to fulfil the technical definition of a recession – two successive quarters of falling activity – it was only a matter of time.

“We are seeing one [quarter of GDP contraction] 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 chancellor told the BBC.

The ONS data showed that the economy stagnated in the final three months of 2019 before its coronavirus-induced plunge in the first quarter of 2020.

UK GDP

Ruth Gregory, UK economist at consultancy Capital Economics, said: “March’s GDP figures showed the UK economy was already in freefall within two weeks of the lockdown going into effect. And with the restrictions in place until mid-May and then only lifted very slightly, April will be far worse.”

Service sector output – which accounts four-fifths of GDP – declined by more than 6% in March, while production fell by 4.2% and construction by 5.9%. Over the year to the first quarter of this year, the economy grew smaller by 1.6%, its fastest rate of decline since late 2009.

The contraction recorded in the first three months of 2020 was slightly smaller than the 2.5% expected by the City. But a much bigger hit is in store for the second quarter, with the Bank of England pencilling in a decline of 25% in GDP. Threadneedle Street is projecting a 14% annual decline.

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The ONS’s deputy national statistician for economic statistics, Jonathan Athow, 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. Although very few industries saw growth, there were some that did, including IT support and the manufacture of pharmaceuticals, soaps and cleaning products.

“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.”

Suren Thiru, head of economics at the British Chambers of Commerce, said: “The speed and scale at which coronavirus has hit the UK economy is unprecedented and means that the first-quarter decline is likely to be followed by a further, more historically significant contraction in economic activity in [the second quarter].

“While a swift ‘V-shaped’ economic revival as restrictions are lifted may prove too optimistic, government support can play a vital role in avoiding a prolonged downturn.”

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