Shit Business stands tall as UK economy posts sharpest monthly decline since 1706
- Paper and paper products experienced record growth in March 2020 partially because of strong demand for toilet roll
- The Bank of England (BOE) last week said it expects GDP to fall by 14% over 2020 as a whole, driven by a 25% decline in the second quarter.
The Uk economy experienced a significant shock since the start of the coronavirus (COVID-19) pandemic; GDP has fallen dramatically, with large broad-based falls in output for production, services and construction.
Commenting on the GDP figures, Jonathan Athow, Deputy National Statistician for Economic Statistics, 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.
UK GDP fell by 2.0% in Quarter 1 2020
GDP fell by 2.0% in Quarter 1 (Jan to Mar) 2020, signalling the first direct impacts of the coronavirus (COVID-19) on the economy
Is The UK heading for recession?
The Lockdown only began on March 23. We lost only seven working days and the results are grim. The contractions in April and May will be even larger.
Output fell in March, across all sectors of the economy and, in many cases, at a record-breaking pace.
The economy contracted by 5.8% in March, the biggest monthly fall that the ONS has ever recorded.
All first estimates are subject to revisions but the ONS says it’s confident it’s got its sums right, that the margin of error will prove to be small.
Towards the end of March every sector of the economy found a reverse gear. Output in the services sector fell by 6.2%, manufacturing fell by 4.6% and construction 5.9%.
These are extraordinary numbers and will have created significant hardship. The only consolation is that the contraction is less devastating than the markets and The Bank of England were expecting as most analysts had predicted a fall of 8% in March.
The unprecedented amount of government support on offer to households and businesses was never going to prevent a recession but it is designed to cushion the blow.
U.K. Finance Minister Rishi Sunak announced on Tuesday
that the country would continue to pay workers on leave due to the coronavirus crisis until the end of October
Mr Sunak confirmed that employees will continue to receive 80% of their monthly wages up to £2,500.
But he said the government will ask companies to "start sharing" the cost of the scheme from August.
A quarter of the workforce, some 7.5 million people, are now covered by the scheme, which has cost £14bn a month.
The number of job losses "breaks my heart", That's why I'm working night and day to limit the amount of job losses."
Will the severity of COVID19 o the economy cause a furlough scheme addiction?
Seven million people have been furloughed in the government Job Retention Scheme. The longer this downturn lasts, the more likely it is they will start to feel unemployed.
The chancelleor disregarded the notion that an extention of the scheme might encourage people to hang their work boots.
"Nobody who is on the furlough scheme wants to be on this scheme," the chancellor said. "People up and down this country believe in the dignity of their work, going to work, providing for their families, it's not their fault their business has been asked to close or asked to stay at home."
Hugh Gimber, global market strategist at J.P. Morgan Asset Management, said that while Wednesday’s figures came as little surprise, they highlighted the magnitude of the challenge facing U.K. policymakers.
“Second-quarter figures that cover a much longer period of lockdown will obviously be far worse,” Gimber commented Wednesday morning.
“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 scars to the labor market can be minimized.”
He added that while economic activity should improve from the second half of 2020, the expected rebound is likely to be “very gradual” and will still leave GDP levels at the end of 2021 below where they finished 2019.
How quickly can the engine of the British economy start running again?
The answer will depend on how the epidemic pans out, when restrictions lift and the degree to which spending resumes when they do. These things are unknowable.
Prime Minister Boris Johnson announced nationwide lockdown measures from March 23 in a bid to curtail the spread of the coronavirus, which has now infected more than 227,000 people in the country. The U.K.’s Covid-19 death toll is by far the highest in Europe.