April GDP slump should mark bottom of UK recession
UK economic activity fell by a record 20% in April as the lockdown took its toll.
The full extent of the coronavirus lockdowns is on display in the latest estimate of UK GDP. The UK economy contracted 20.4% in the month of April – the first full month of lockdown.
This follows the 5.8% fall in March, the month in which the lockdown was implemented in the final week. This means that in the three months to April, the UK economy contracted by 10.4%.
The latest estimate is worse than consensus estimates of an 18.4% drop. Compared to the proportion of the economy implied by the March data to have been shut down, it appears that the lockdown has become slightly more severe.
Within the details of the monthly data, the construction sector saw the largest fall in activity, contracting by 40.1%. Output from production sectors, including manufacturing, fell by 20.3%, while services activity declined by 19%.
Within services, the accommodation and food services sub-sector recorded a devastating 88.1% fall in April, following a 31.1% decline in March. Arts, entertainment and recreation were also severely hit, down 39.7%.
In contrast, the public administration and defence sector was flat, while financial and insurance activities only fell 5.3%.
April should prove to be the worst month for the economy during the coronavirus crisis. On 10 May, prime minister Boris Johnston asked non-essential workers who cannot work from home, but that can safely return to work, to do so.
Google mobility data suggests that the fall in travel to work bottomed out in April, which supports our view that GDP in May could have returned to positive growth.
Of course, it will take a very long time before activity returns to its previous peak, but as the UK tentatively takes further steps to re-open the economy, we expect the economic recovery to gather momentum.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.