UK economy shrinks by the most in 40 years amid Covid-19 crisis

Britain's economy shrank by the most since 1979.
Britain's economy shrank by the most since 1979.PHOTO: EPA-EFE

LONDON • Britain's economy shrank by the most since 1979 in early 2020 as households slashed their spending, according to official data that included the first few days of the coronavirus lockdown.

Gross domestic product dropped by a quarterly 2.2 per cent between January and March, the Office for National Statistics (ONS) said.

That was below the median forecast in a Reuters poll of economists for a fall of 2.0 per cent.

Prime Minister Boris Johnson was scheduled to set out his plan to speed up the British economy's recovery later yesterday. He will promise to fast-track £5 billion (S$8.57 billion) of infrastructure investment.

Britain's economy may have contracted by 20 per cent in the first half of this year, the Bank of England (BOE) said earlier last month as the full effects of the lockdown hammered most sectors in the April-June period.

The BOE has said the slump in the economy this year could be the worst in three centuries. Yesterday's figures - which build on previously released data for the first quarter - showed a surge in household saving as spending collapsed by the largest amount, in cash terms, since records began in the 1950s.

"The lockdown of most businesses on March 23 meant that households were unable to spend even if they wanted to," said UK economist Thomas Pugh at Capital Economics, adding it will take the economy until 2022 to regain its pre-crisis level.

The household savings ratio shot up to 8.6 per cent in the first quarter from 6.6 per cent at end-2019.

The ONS previously estimated that Britain's economy shrank by a record 20.4 per cent in April from March but there have been some signs of recovery more recently.

The ONS also said Britain's current account deficit widened by more than expected in the first three months of the year.

The balance of payments deficit - a longstanding concern for investors because it leaves Britain reliant on foreign inflows of cash - grew to £21.1 billion in the first quarter, compared with a median forecast of £15.4 billion in a Reuters poll of economists. Stripping out volatile movements of gold and other precious metals, the current account deficit narrowed slightly, the ONS said.


A version of this article appeared in the print edition of The Straits Times on July 01, 2020, with the headline 'UK economy shrinks by the most in 40 years amid Covid-19 crisis'. Print Edition | Subscribe