Britain got a taste of what’s to come on Wednesday with a big slump in first-quarter growth. The country’s Office for National Statistics (ONS) said the UK economy contracted 2% in the three months to March, thanks to a massive 5.8% slump in the month of March alone.
The economy fell 1.6% from the March quarter of 2019
The quarterly decline is the biggest since the GFC in 2008 and is the first indication of the coronavirus’ growing impact on the economy before the pandemic swept across the economy from mid-March onwards.
The March quarter fall in Britain is less than the 3.8% slump suffered by the eurozone in the first quarter.
But many economists predicting that the second quarter could see British economic output shrink by a quarter, or even more. Consumer spending contracted by 36.5% year-over-year in April, according to Barclaycard, which processes nearly half the UK’s credit- and debit card transactions.
But Britain only started its lockdown on March 23, later than many other eurozone countries such as Italy, Spain, and France which were well into their lockdowns by March 23 (which is when most stock markets around the world hit their COVID-19 slide lows).
COVID-19 has killed more than 40,000 people so far in the United Kingdom, the highest death toll reported in Europe.
The news saw British two-year government bond yields sank to a record low of -0.045%, reinforcing the growing market belief that the Bank of England will ramp up its record 645 billion pounds ($7US91 billion) of asset purchases next month.
Presented in the annualised form the US, China, and Japan favour, the UK economy contracted by 7.7% in the first quarter, which is worse than the 4.8% downturn by the but better than eurozone peers including France and Italy.
Annualised, the March fall was more than 23% (while looking at GDP by the month can be very misleading, it does show that the pace of the contraction strengthened appreciably, hinting at what was to come from April onwards.)
Last week, the Bank of England grabbed headlines when it warned that the British economy could fall by around 30% in the first half of the year, before a strong recovery in the second half of the year, leaving it 14% smaller by the end of 2020.
The Bank said that even with that predicted second-half recovery, the annual fall would be the biggest since 1706.
The ONS said net trade and consumption were the biggest drags during the first quarter. Travel demand slumped by 23.6%, accommodation fell by 14.6% and motor vehicle and motorcycle trade collapsed by 10.7%.
As in Australia and the US, tech products got a boost in March thanks to a surge in demand for laptops for work-at-home employees.
And the paper industry got a boost as toilet paper was hoarded (as it was in Australia, the US, Europe, New Zealand, China, Russia and many other countries). Consumer behaviour seemingly doesn’t respect national boundaries.
