UK GDP suffers biggest fall on record

These growth numbers are poor, but the economic impact of coronavirus will get much worse than this.

The Office for National Statistics has today published data which captures the impact the Covid-19 pandemic has had on output in the UK economy:

• UK GDP was estimated to have fallen by 2.0% in Q1 2020, the largest fall since Quarter 4 2008
• GDP fell by 5.8% in March 2020, the biggest monthly fall since the series began in 1997
• Household consumption fell by 1.7% in Q1, the largest contraction since Quarter 4 (Oct to Dec) 2008, alongside declines in gross fixed capital formation, government consumption and trade volumes

Richard Hunter, head of markets at interactive investor, says: “The figure is no surprise and is actually better than expected. However, the March part of the number better reflects reality, with the second quarter likely to bear the economic brunt of the pandemic while also confirming the inevitable recession which is almost certainly already in play in the UK.

“The figure is, of course, for the first three months of the year and as such is equivalent to driving with the rear-view mirror. Even so, the slight lockdown restrictions which have been announced will not restore the UK to its former position, which could conceivably take several quarters depending on how the virus is dealt with, both from a health perspective as well as any possibility of a return to economic reality.”

Myron Jobson, ii's personal finance campaigner, says: “The question on investors’ minds is how do these figures affect my bottom line? These are uncertain times for all of us, and as we inevitably cut our cloth to suit our coats, financial prudence will be top of household priorities right now – so it’s hard to feel optimistic about a return to normal for the UK economy, even as we tentatively take small steps out of lockdown. 

“For investors, financial prudence could involve checking the cost of investments and their chosen investment platform to ensure that they are not paying over the odds as costs can eat into returns. But it’s worth running some cost comparisons across all your outgoings, from utilities through to the credit card charges, and consolidating debt can also make it cheaper to service.

“And there is also a question of taxes – will they go up? A school of thought believe so to foot the huge amount of state aid spending during the outbreak. The furlough scheme alone could amount to £80 billion by some estimates, which is thought to be more than what is spent on the education system and half the spend on the whole NHS is a year. Making full use of tax shelters like ISAs and pensions is good practice at the best of times, but even more so amid a very real prospect of tax hikes if you are lucky enough to be able to do so.”