Via Financial Times

The UK economy shrank at the fastest monthly rate on record in April as the coronavirus lockdown hit demand and activity in all sectors.

Output in the UK fell by 20.4 per cent in April, compared with the previous month, according to data from the Office for National Statistics. This is by far the largest contraction since monthly records began in 1997 and follows a 5.8 per cent contraction in March, the previous record fall.

“April’s fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost 10 times larger than the steepest pre-Covid-19 fall,” said Jonathan Athow, deputy national statistician for economic statistics at the ONS. “In April the economy was around 25 per cent smaller than in February.”

The decline exceeds the 18.4 per cent contraction forecast by economists polled by Reuters.

Line chart of Untitled Subtitle showing The UK economy shrank at a record pace

April’s figure dwarfs the downturn during the 2008-09 financial crisis, when the fastest contraction was a monthly fall of 1 per cent in March 2009. It also far exceeds the 6 per cent cumulative output lost during the one-and-a-half years of economic contraction during the financial crisis.

It reflects a full month of lockdown with extensive business closures and consumers asked to remain indoors. In the three months to April, the economy contracted 10.4 per cent. This is by far larger than any quarterly contraction since these records began in 1955 and reduces the real value of goods and services produced in the country to the level seen in 2002.

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Rishi Sunak, the UK chancellor, acknowledged the pandemic was “having a severe impact on our economy”.

“The lifelines we’ve provided with our furlough scheme, grants, loans and tax cuts have protected thousands of businesses and millions of jobs — giving us the best chance of recovering quickly as the economy reopens,” he said after the data were released.

All major sectors registered a sharp fall. Output in the services sector, which accounts for about 80 per cent of the economy, fell by 19 per cent in April compared with the previous month. Services, particularly accommodation, food services, travel, retail and entertainment, have been particularly badly hit with most businesses having to temporarily close during the lockdown. But all services subsectors except for public administration and defence were a drag on growth in April.

Industrial production shrank by 20.3 per cent, the largest drop since the figures were first collected in 1968, with the sharpest fall for transport equipment such as car production, which fell by 28.3 per cent. Pharmaceutical production was the only manufacturing subsector to register an expansion, with 15.4 per cent growth.

Line chart of Index, 2016=100 showing The UK economy shrank at an unprecedented pace

The UK is one of the few countries that publishes monthly GDP figures, but the downturn in factories is in factories is slightly larger than the 17.1 per cent monthly fall for the eurozone and similar to France’s 20 per cent fall in industrial production in April and a 17.9 per cent contraction in Germany.

With many building sites shut, output in the UK construction sector plummeted by 40.1 per cent in April, also the sharpest monthly fall since equivalent data became available in 2010.

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Trade was also badly hit by the pandemic restrictions, with large falls in both the import and export of cars, fuels, works of art and clothing. Total imports fell at an unprecedented monthly rate of 26 per cent and exports by a record 19 per cent. 

The ONS warned that GDP estimates for March and April 2020 were subject to “more uncertainty than usual” due to difficulties in collecting the data during the pandemic. Economists expect April’s contraction to be the sharpest of the crisis but they fear a slow recovery and long-lasting scars.

Earlier this week, the OECD, the Paris-based organisation, forecast a deeper recession in the UK than in most other advanced economies.

Suren Thiru, head of economics at the British Chambers of Commerce, said that “any prospect of a ‘V-shaped’ recovery remains unlikely, with many sectors continuing to operate at reduced capacity”. 

Andrew Wishart, UK economist at consultancy Capital Economics, said: “Having plumbed those unprecedented depths, the economy is now on the return leg. But the recovery will be a far more drawn-out affair than the collapse. While the trough in activity is now behind us, the fiscal cost of the collapse and the rise in the unemployment rate to over 8 per cent that will result are only just starting to emerge.”

James Smith, economist at investment bank ING, said April’s GDP figures were “shocking”. With some social-distancing measures set to remain in place even when business reopen “many firms will be operating below normal operation levels for the foreseeable future,” he added.

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Mr Smith also warned that Brexit looked set to pose a “serious challenge” later this year.