March’s GDP figures showed that the UK economy was in freefall as soon as the coronavirus lockdown began. And with all the restrictions in place until mid-May, and then only lifted very slightly, April will be far worse.
Record collapse in economic activity and worse to come
- March’s GDP figures showed that the UK economy was in freefall as soon as the coronavirus lockdown began. And with all the restrictions in place until mid-May, and then only lifted very slightly, April will be far worse.
- The 5.8% m/m decline in GDP in March (consensus: -8.0%; CE: -6.0%) illustrates that economic activity must have dropped very sharply after the full lockdown on 23rd March. To put this into context, in just one month the economy has tumbled by as much as it did in the year and a half after the global financial crisis. Admittedly, the UK economy appears to be faring a bit better than other countries, since it contracted by “only” 2.0% q/q in Q1, compared to France’s 5.8%, Spain’s 5.2% and Italy’s 4.7% falls. But this is not surprising given that the nationwide lockdowns in Europe were imposed up to two weeks earlier.
- The breakdown by sector highlights how the pandemic has affected almost the entire economy. Only the government sector managed a rise in output in March – and a paltry 0.1% m/m at that. Travel agencies registered a whopping 50.1% m/m decline and air transport dropped by 44.0% m/m. Food and accommodation posted a 31.1% m/m fall. Within that, accommodation was down by a huge 45.7% m/m. The next most impacted was the other services category (which includes personal services like haircuts) and education, which slumped by 18.1% m/m and 14.5% m/m respectively.
- The falls in output in the information, finance and insurance and professional services sectors were milder, reflecting the fact that many employees in those sectors have been able to work from home. The declines in output in the manufacturing (-4.6% m/m) and construction (-5.9% m/m) sectors were comparatively smaller, but they are still huge by normal standards. (See Table 1.)
- Meanwhile, the quarterly breakdown of growth by expenditure components in Q1 revealed that consumer spending contracted by 1.7% q/q. (See Table 2.) And according to the Barclaycard spending figures, also released this morning, a fall of around 36.5% y/y is in store in April. Exports (excluding the volatile non-monetary gold component) fell by 6.0% q/q. Net trade only provided a broadly neutral contribution to GDP growth because imports also slumped by 8.1% q/q. The good news was that business investment did not fall (it was flat in Q1). Even so, it is likely to slump in the coming months.
- Given that the economy was growing at a quarterly rate of about 0.1% before the lockdown, today’s release implies that economic activity after the lockdown was imposed on 23rd March was down a whopping 21%. That suggests our forecast for a 20% m/m or so contraction in GDP in April and 25% peak to trough is about right. (See Chart 1.) Admittedly, the gradual lifting of containment measures suggests that April will probably prove to be the low point. Nevertheless, even if the restrictions continue to be gradually eased over the summer, we think that activity won’t return to pre-crisis levels until late in 2022. As a result, the MPC may yet have a lot more work to do.
Chart 1: Peak to Trough Change in Past Recessions (%)
Sources: Refinitiv, Capital Economics
Table 1: GDP by Sector
GDP in March (% m/m)
Contribution to m/m GDP (ppts)
Share of GDP (%, 2019)
Public administration and defence
Water supply and sewage
Financial and insurance
Electricity and gas
Professional, scientific and technical
Information and communications
Human health and social work
Activities of households
Wholesale, retail and motor repairs
Administration and support
Mining and quarrying
Arts and entertainment
Transportation and storage
Other service activities
Accommodation and food
Summary of Sectors
Sources: ONS, Capital Economics
Table 2: GDP by Expenditure (Components of GDP, % q/q Unless Stated)
Fix. Capital Formation
Stockbuilding(Cont. to Growth1)
Sources: Refinitiv, Capital Economics, 1Excluding alignment adjustment
Ruth Gregory, Senior UK Economist, +44 7747 466 451, email@example.com