U.K. economic growth shrinks sharply in Q1 2020, likely to fall further in coming months

U.K. economic activity saw a record monthly fall in March as lockdown measures took effect. On a month-on-month basis, the economic growth shrank 5.8 percent in March. This is a smaller contraction than consensus expectations of a contraction of 7.9 percent. However, it is expected to pale in comparison to the fall in activity seen throughout April, as restrictions became more widespread, stated Lloyds Bank in a research report.

Delving into details, the falls were widespread throughout the three main categories. Services sector saw a fall of 6.2 percent, while industrial and construction sector saw falls of 4.2 percent and 5.9 percent, respectively. The March decline signify that the first quarter of as a whole also recorded a sharp decline, contracting 2 percent quarter-on-quarter, the largest quarterly contraction since the fourth quarter of 2008.

Today’s fall is less than the 3 percent fall in the first quarter of GDP, that supported the Bank of England’s view of the near-term performance of the U.K. economy in its recent Monetary Policy Report. Nevertheless, it should be noted that the ONS underlined difficulties in collecting some of the data, given the lockdown restrictions.

“As a result, the ONS cautioned that preliminary data estimates are subject to more uncertainty than usual, which probably leaves them more prone to revision. Accordingly, today’s report does little to alter our view that the bias remains skewed towards the Bank of England loosening policy further in the coming months”, added Lloyds Bank.