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United Kingdom GDP Q1 2020

United Kingdom: Economy records sharpest contraction since 2008 in the first quarter

GDP decreased 2.0% in the first quarter (Q4: 0.0% seasonally-adjusted quarter-on-quarter), marking the worst reading since Q4 2008.

Private consumption contracted 1.7% in Q1 (Q4: -0.1% s.a. qoq), weighed on by social distancing measures and weak consumer sentiment. Public consumption fell 2.6% (Q4: +1.5% s.a. qoq) on lower non coronavirus-related health spending, and school closures reducing spending on education. Meanwhile, fixed investment contracted 1.0% (Q4: -1.2% s.a. qoq) amid shrinking housing and public investment.

Exports of goods and services fell 10.8% in the first quarter, which contrasted the fourth quarter’s 5.0% expansion, due to lockdowns around the world. Imports of goods and services dropped 5.3% (Q4: +0.4% s.a. qoq). As a result, the external sector subtracted 1.9 percentage points from growth, contrasting the 1.5 percentage-point contribution in Q4.

On an annual basis, the economy contracted 1.6% in Q1, contrasting Q4’s 1.1% increase.

The economy is seen declining far more sharply in Q2 as the full impact of the nationwide lockdown declared in late March is felt. Looking further ahead, panelists see activity recovering somewhat in H2 as restrictions are lifted in the UK and around the world; however, the possibility of a second wave of infections—and subsequent reinstatement of lockdown measures—is a key risk.

James Smith, economist at ING, comments: “the period between April and June will see a much steeper decline. It’s now very hard to imagine a rapid ‘V-shape’ recovery, and we don’t expect a return to pre-virus levels of activity until 2022 at the earliest”.

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