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UK Economy Has Sharpest Decline in 40 Years but V-Shaped Recovery Predicted

The latest figures have revealed that the British economy suffered a bigger contraction in the first three months of 2020 than had been expected. However, it is hoped that a v-shaped recovery will be seen in the rest of the year.

The Latest GDP Figures

New figures show that the country’s GDP plunged by 2.2% in the first quarter of 2020. This was the biggest drop in more than four decades, and was due to the economy being virtually shut down once the coronavirus pandemic appeared.

The data comes from the Office for National Statistics (ONS). They noted that the nation’s GDP contracted by 6.9% in March. This was despite the lockdown restrictions only being imposed for the final nine days of that month, and these numbers were worse than had been predicted by the ONS.

The sudden closure of businesses all over the UK led to a more dramatic fall in the GDP than the ONS has thought would occur. It was the third quarter of 1979 when we last saw the economy contact as much as this. Of course, the numbers for April and May will be even worse.

It has been expected that March would show a drop of 5.8%, and the first quarter overall a decline of just 2%. With the economy being more affected than expected, it is no surprise that many companies are now looking at collection agency fees and other options.

More Details

One of the big factors in this situation was the drop in consumer spending, as people were unable to spend money once the lockdown started. Consumer spending in the UK fell by 2.7% in the period between the last quarter of 2019 and the first quarter of this year.

In fact, the drop in spending was calculated as being £9.5 billion in cash terms. This adds up to the sharpest drop the country has ever seen. Among the areas where spending levels plummeted were the likes of clothing, hotel stays, dining out and cars.

The most seriously affected sector was the services industry. This makes up 80% of the UK’s economy and it suffered a drop of 2.3% in the first quarter of 2020. Production fell by 1.5% and the construction sector had a 1.7% fall.

On the other hand, this lack of spending led to a rise in the household savings ratio. This figure shows how much of our monthly income is saved rather than spent. It climbed from 6.6% to 6.8% in the first three months of the year.

The V-Shaped Recovery Prediction

The main issue now is what the recovery will look like. Andy Haldane is chief economist on the Bank of England’s Monetary Policy Committee. He believes that we are heading for a faster recovery than initially predicted.

Haldane thinks that it will be a v-shaped recovery, but not every analyst agrees with that. This is why the economic indicators for the next months are so eagerly awaited and will be closely analysed as soon as they are released.