UK GDP falls as data shows household consumption weakest since 1979On June 30, 2020 by Thomas Belayneh
The Office for National Statistics (ONS) released Q1 GDP figures for the UK this morning showing a 2.2% decline on the prior quarter and 1.7% on the prior year, as coronavirus began to wreak havoc on the economy. The UK’s current account balance missed consensus expectations for -£15bn instead coming in at -£21.1bn.
The decline in economic output for the three months til the end of March was the joint-third largest quarterly fall on record and reflected the start of the UK government’s movement restrictions and voluntary social distancing in response to the pandemic.
Of the 2.2% quarterly decline in output on the prior quarter, the UK’s services sector contributed 1.87% with production accounting for 0.19%, and construction for 0.1% (totalling 2.2% when rounded to one decimal point).
Taking to the services sector first, the hardest hit sub-sector among all sub-sectors was understandably accommodation and food services. This sub-industry fell 10.4% on the prior quarter, as hotels saw reduced room bookings followed by closures whilst restaurants were shut with only essential retail shops being allowed to remain open.
Bucking the trend was the financial and insurance sub-industry where output actually increased by 0.4% on the prior quarter, as companies rushed to the capital markets to raise debt and equity to ensure their survival through the pandemic.
The production sector fell 1.5% on the prior quarter with manufacturing output leading the decline among all sub-sector groups. In manufacturing, particularly heavy declines were seen in the manufacture of transport equipment and machinery, where car production fell an astonishing 15.2% quarter-on-quarter as factories were shutdown.
This data was largely inline with the shocking report by the Society of Motor Manufacturers and Traders (SMMT) showing a year-on-year decline of 37.6% in industry output in March 2020.
Declines among the sub sectors in the production sector were expectedly offset by a stellar surge in pharmaceutical output which increased 12.5%, quarter-on-quarter, driven by unusually high purchases of basic medicines such as paracetamol and ibuprofen.
Although the quarterly contraction of household consumption of 2.9% was the worst since the July-to-September period of 1979, the data showed a rise in food and drink spending and intriguingly, but to a lesser extent, a rise in alcohol and tobacco spending, potentially highlighting a concerning public health issue in the way of dealing with stress.
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