UK economy shrinks at fastest pace since financial crisis

The UK economy shrank at the fastest pace since 2008 in the first three months of the year as coronavirus forced the country into lockdown.

UK economy shrinks at fastest pace since financial crisis

The Office for National Statistics said the economy contracted by 2% in the three months to March, following zero growth in the final quarter of 2019.

The decline was driven by a record fall in March, and reflects just one full week of lockdown.

Analysts expect a bigger economic slump in the current quarter.

This is the first official growth estimate since the government introduced social distancing measures at the end of March.

Ruth Gregory, senior UK economist at Capital Economics, said the figures showed the UK economy was "already in freefall within two weeks of the lockdown going into effect".

She added: "With the restrictions in place until mid-May and then only lifted very slightly, April will be far worse."

While analysts expected a larger quarterly decline of 2.6% in the first three months of the year, it still represents the biggest contraction since the end of 2008, when Lehman Brothers collapsed.

The ONS said there had been "widespread" declines across the services, manufacturing and construction sectors.

This includes a record 1.9% fall in services output, which includes retailers, travel agents and hotels.

It added: "This is the largest quarterly contraction since the global financial crisis and reflects the imposing of public health restrictions and voluntary social distancing put in place in response to the Covid-19 pandemic".

Opening up

The figures come as some of the lockdown restrictions are starting to be eased. Some employees in England who cannot work from home are now being encouraged to return to their workplaces.

Sectors "allowed to be open, should be open", the government says. These include food production, construction and manufacturing.

In other developments, estate agents in England can now reopen, viewings can take place and removal firms and conveyancers can re-start operations, so long as social-distancing and workplace safety rules are followed.

On Tuesday, Chancellor Rishi Sunak announced an extension of the furlough scheme subsidising wages to the end of October.

While the scheme was "expensive", he told the BBC that the cost to society of not doing it would be "far higher".

 

France and Italy saw much bigger contractions of 5.8% and 4.7% respectively in the first quarter, where lockdowns were imposed up to two weeks earlier.

However, analysts expect a double-digit drop in UK gross domestic product (GDP) in the coming quarter.

The Bank of England has warned that the UK economy is likely to suffer its sharpest recession on record this year, even if the lockdown is completely lifted by the end of September.

While the Bank said the economy could shrink by 14% in 2020, it expects the downturn to be short and sharp, with growth of 15% predicted in 2021.

The decline is also expected to be less prolonged than during the financial crisis, when the economy shrank for five consecutive quarters.

It also took five years to get back to the size it was before the meltdown.

The Bank of England expects the UK economy to rebound more quickly this time, returning to its pre-crisis size within two years.

The Chancellor has acknowledged to me it was "very likely" the UK is already in the middle of a significant recession after the publication of first quarter GDP figures showing one of the sharpest declines on record for the UK economy.

He said the -2% number was "not a surprise" and "in common with pretty much every economy around the world, we're facing a severe impact from the coronavirus impact" and the numbers underlined why the Government had taken "unprecedented action" to support jobs, incomes and livelihoods" at a time of severe disruption.

On the reality that the UK has been in recession for four months he said: "Well, as you know, recession is defined technically as two quarters of decline in GDP. We've seen one here with only a few days of impact from the virus, so it is now, yes, very likely that the UK economy will face a significant recession this year, and we're already in the middle of that as we speak."

Asked about the leak to the Telegraph of an internal Treasury options paper which contained dire numbers for the UK deficit, and a view that a rapid "V-shaped" recovery was "optimistic", the Chancellor said that it was "too early to speculate"

However, he added: "What we do know is in order to make sure that recovery as swift and as strong as we will like it to be, we need to take action now to protect people's jobs and support businesses through this time." BBC

The reason why the number for the first three months matters is that it shows how devastating even a week or two of shutdown can be.

It means that April's month-long closure of large swathes of the economy is likely to have hit GDP by 20-25%. This first quarter fall is bad enough and is one of the worst five economic quarters since modern records began in 1955. But the current quarter will see a hit at least 10 times worse, and off any imaginable scale in living memory.

The much hoped for sharp bounce back, for example as contained in the Bank of England scenario last week, and the precise reason why so much rescue funding has flowed, is looking far from certain.

 
 

Other News

.
HCM City’s housing industry faces difficulties
HCM City’s housing industry faces difficulties
BUSINESSicon  29/06/2020 

The property industry in Ho Chi Minh City, and in fact the country in general, faces several problems that need urgent solutions, especially with regard to legal provisions.

Vietnam slashes auto registration fee by half
Vietnam slashes auto registration fee by half
BUSINESSicon  28/06/2020 

Prime Minister Nguyen Xuan Phuc has just signed Decree 70 allowing the cut of 50% of the registration fee for customers who buy locally-produced and assembled automobiles, effective June 28.

Vietnam’s logistics industry hit hard by Covid-19 pandemic
Vietnam’s logistics industry hit hard by Covid-19 pandemic
BUSINESSicon  28/06/2020 

The Vietnamese logistics industry is among those hit the hardest by Covid-19, as the unpredictability and duration of the pandemic have presented multiple challenges in both the short and long terms, 

Major businesses undergo slow recovery after Covid-19
Major businesses undergo slow recovery after Covid-19
FEATUREicon  28/06/2020 

Despite the positive business results witnessed in the early months of the year, many listed companies have been cautious with their pre-tax profit targets.

Limit on capacity continues to hinder solar panel installation
Limit on capacity continues to hinder solar panel installation
BUSINESSicon  28/06/2020 

With the rising prices of electricity pushing many enterprises and households to install rooftop solar panels that partly help reduce electricity bills, the cap on solar power capacity is hindering the process.

Petrolimex pushes for PGBank-HDBank merger before Aug 31
Petrolimex pushes for PGBank-HDBank merger before Aug 31
BUSINESSicon  27/06/2020 

Petrolimex, which holds a 40% stake in the Petrolimex Group Commercial Bank (PGBank), sought to complete the merger between PGBank and the HCMC Development Bank before August 31, said the Vnexpress website.

Energy revolution
Energy revolution
BUSINESSicon  28/06/2020 

The first solar panel, which was invented by French physician Alexandre Edmond Becquerel in 1839, has become a significant watershed for the energy sector in the future. 

FDI inflows drop 15.1 percent year on year in first half
FDI inflows drop 15.1 percent year on year in first half
BUSINESSicon  27/06/2020 

Vietnam recorded a year-on-year decrease of 15.1 percent in foreign direct investment (FDI) inflows to 15.67 billion USD as of June 20, according to the Ministry of Planning and Investment (MPI).

WB debars Vietnamese firm for collusive and fraudulent practices
WB debars Vietnamese firm for collusive and fraudulent practices
BUSINESSicon  27/06/2020 

The World Bank Group has announced the seven-year debarment of Vietnam-based Sao Bac Dau Technologies Corporation (SBD) in connection with collusive and fraudulent practices under the Danang Sustainable City Development Project

The worst is yet to come for Vietnam's tourism
The worst is yet to come for Vietnam's tourism
BUSINESSicon  28/06/2020 

Vietnam may have seen an over 50% decline in the number of tourist arrivals over the past five months due to Covid-19 but the situation is only expected to worsen, as the crisis has been forecast to reach its peak in the next few months, 

Coca-Cola suspends social media advertising despite Facebook changes
Coca-Cola suspends social media advertising despite Facebook changes
BUSINESSicon  27/06/2020 

The company condemns racism and seeks more accountability from Facebook and other platforms.

Hanoi attracts US$17.6 billion for 229 projects
Hanoi attracts US$17.6 billion for 229 projects
BUSINESSicon  27/06/2020 

Hanoi is going to present investment certificates for 229 projects with a total value of US$17.6 billion and sign 38 memoranda of understanding worth a combined US$28.6 billion, according to the Tuoi Tre Online website.

Vietnam prepares to resume international flights
Vietnam prepares to resume international flights
BUSINESSicon  27/06/2020 

It is still unclear when Vietnam will reactivate international flights and reopen its market to foreign travelers, but agencies and travel firms all are making hectic preparations.

Vietnamese businesses burdened with taxes, FIEs at ease with tax exemptions
Vietnamese businesses burdened with taxes, FIEs at ease with tax exemptions
BUSINESSicon  29/06/2020 

Studies have found that Vietnam’s taxation system offers many incentives to foreign invested enterprises (FIEs), but puts an increasingly heavy burden on Vietnamese enterprises and people.

Banks’ support desired for mobile payments
Banks’ support desired for mobile payments
BUSINESSicon  26/06/2020 

New approaches, especially regarding activities of banks, are required to boost the reach of mobile money agents and expand financial inclusion in Vietnam.

Authorities get to grips with new bad debt mountain
Authorities get to grips with new bad debt mountain
BUSINESSicon  27/06/2020 

A spike in the amount of bad loans sitting in banks’ books has triggered Vietnamese authorities to seek new paths to recovery,

Debt limit to be adhered to despite bumps in road
Debt limit to be adhered to despite bumps in road
BUSINESSicon  26/06/2020 

In spite of a dent in state budget revenue and a rise in spending this year causing a big fiscal deficit, the government will be able to retain the country’s public debt situation, ensuring national financial security.

Coronavirus: Qantas to axe 6,000 jobs due to pandemic
Coronavirus: Qantas to axe 6,000 jobs due to pandemic
BUSINESSicon  26/06/2020 

The airline says the collapse in billions of dollars of travel revenue means it has "little choice".

Bayer to pay $10.9bn to settle weedkiller cancer claims
Bayer to pay $10.9bn to settle weedkiller cancer claims
BUSINESSicon  26/06/2020 

The chemical giant is settling almost 100,000 US lawsuits from users of its popular Roundup herbicide.

Olympus quits camera business after 84 years
Olympus quits camera business after 84 years
BUSINESSicon  26/06/2020 

Once a huge camera-maker, it is looking to carve off that part of its business and focus elsewhere.

 
 
 
Leave your comment on an article

OR QUICK LOGIN