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Financial News: UK Economy Contracts Most On Record Amid Covid-19

UK Economy Contracts Most On Record Amid Covid-19 Restrictions

06/12/2020 - 04:36:00 (RTTNews)

(RTTNews) - The UK economy contracted in April at the fastest pace since the series began in 1997, as restrictions on movement amid the coronavirus pandemic severely hurt economic activity.

Gross domestic product contracted by a more-than-expected 20.4 percent in April from March, when it was down 5.8 percent, data from the Office for National Statistics showed Friday. GDP was forecast to fall 18.4 percent. In the three months to April, GDP decreased 10.4 percent, which was slightly faster than the expected fall of 10 percent.

Jonathan Athow, Deputy National Statistician for Economic Statistics, said, "April's fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost ten times larger than the steepest pre-covid-19 fall."

Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall, Athow added.

Record contractions were registered across services, industrial production, manufacturing and construction in April.

The services sector reported a monthly fall of 19 percent in April versus a 6.2 percent decrease a month ago. The largest contributors to the decline were wholesale, retail and motor trades.

At the same time, industrial output declined by a record 20.3 percent in April from the previous month, with manufacturing providing the biggest downward contribution, falling by a record 24.3 percent.

Economists had forecast industrial production to drop 15 percent after easing 4.2 percent a month ago. Similarly, manufacturing output was expected to decline 15.8 percent versus March's 4.6 percent drop.

On a yearly basis, the decline in industrial production deepened to 24.4 percent from 8.2 percent. Likewise, manufacturing output dropped 28.5 percent versus a 9.7 percent decrease a month ago.

Construction decreased 40.1 percent monthly compared to a 5.9 percent drop in March. Farm output fell only 5.5 percent in April.

Another report from ONS showed that the visible trade deficit narrowed to GBP 7.49 billion from GBP 11.85 billion in March. Exports and imports decreased 14.9 percent and 21.9 percent, respectively.

At the same time, the total trade balance showed a surplus of GBP 305 million compared to a shortfall of GBP 3.95 billion in March.

As social distancing constraints, consumer and business caution, as well as Brexit, all pose challenges to the UK economic recovery, the Bank of England is likely to continue expanding its balance sheet, James Smith, an economist at ING economist, said.

The economist expects the Bank of England to increase its quantitative easing programme next week.

The Organisation for Economic Cooperation and Development, earlier this week, projected the UK economy to shrink sharply by 14 percent in 2020, if there is a second virus outbreak later in the year. An equally likely single-hit scenario would still see GDP fall sharply by 11.5 percent, the think tank said.

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