UK Economy: Sharpest Decline on Record

The UK economy recently posted its sharpest decline on record due to the impact of coronavirus pandemic. The buildup of the decline began since the outbreak became intense in the UK.

In March, the UK economy contracted by 5.8% resulting in its GDP to contract by 2% during the first three months of the year, on a month-on-month basis. The Bank of England also said last week that it expects a 14% fall in the GDP over 2020 and a 25% decline in the second quarter. The GDP contraction was in accordance with the preliminary figures from Wednesday’s announcement, due to the impact of the lockdown measures on economic activity in the UK.

The GDP contraction has since become the biggest fall since the beginning of the series in 1997, according to reports from the Office for National Statistics (ONS). While the March reading reported sharp declines, it still beat the expectations of analysts of a 7.2% decline.

Analysts also expected a 2.5% contraction in the first three months, on a quarter-on-quarter basis, compared to the actualized 2% contraction.

On March 23, in a bid to curtail any further spread of the coronavirus, UK Prime Minister Boris Johnson announced a total nationwide lockdown. From then till now, over 227,000 people in the UK have been infected with the virus. Earlier this week, Johnson revealed a plan to ease the lockdown measures in the coming months.

The Bank of England’s expectation of the GDP fall over 2020 would be the sharpest annual slump since 1706, according to its historical data. The downturn would be temporary but would be followed by a rapid recovery.

Global market strategist at JP Morgan Asset Management, Hugh Gimber said, in regard to Wednesday’s reading, that “second-quarter figures that cover a much longer period of lockdown will obviously be far worse.”

According to Gimber, while the figures were quite surprising, UK policymakers faced a magnitude of challenges.

“Yesterday’s decision to extend the furlough scheme is in line with the government’s aim to hold the economy in ‘suspended animation’, in the hope that lasting scar to the labor market can be minimized,”

He also mentioned the possibility of economic activity to improve from the second half of 2020, however, it would be “very gradual”, leaving GDP levels relatively low until 2021.

According to an analysis done by The Guardian, every aspect of the UK economy was affected in March as the impact of the coronavirus pandemic continues to ravage its economy.

“Britain broke all records for a monthly decline in gross domestic product, just two weeks of restrictions needed to drastically alter the economic landscape. All three major drivers of growth – services, manufacturing, and construction – went into reverse.”