There was a record fall in gross domestic product (GDP) of 20.4% in April 2020 according to new figures from the Office for National Statistics (ONS), which is over 3 times larger than the fall in March 2020 of 5.8%. As a whole, the Bank of England project in its May 2020 Monetary Policy Report that GDP may contract by up to 25% during the second quarter of 2020 (i.e. April to June 2020), and by 14% overall in 2020, but the Bank caution that "there are wide bands of uncertainty around any estimates of activity at the present time." Nevertheless, if the forecast is accurate, then the annual fall in GDP of 14% would be the largest contraction since 1706.
The Bank of England also forecast that unemployment may double to 9% in the second quarter.
Record Fall In GDP Of 20.4%
The ONS report that GDP fell by 20.4% in April 2020, which represents a record fall in GDP. The report also found that:-
- GDP fell by 10.4% in the 3 months to April 2020
- Services output contracted by 9.9% during the period February -April 2020, whilst production fell by 9.5% and construction by 18.2% during the same quarter. Most of the decline occurred during April 2020, the first full month of the coronavirus lockdown. During that month, services output fell by 19.0%, production by 20.3%, and construction by an astonishing 40.1%.
- Consumer spending fell by 18% in April 2020. This represented the largest ever slump in sales since records began, and it meant that sales volumes fell back to 2005 levels. Moreover a report from Growth for Knowledge found that consumer confidence had plummeted to -34% during the final 2 weeks of March 2020, the largest fall since records began in January 1974. By the 5th June 2020, confidence had fallen further to -36.
- Alongside the record fall in GDP, unemployment increased by 69.1% in April 2020 to 2.1 million. This increase represented a record. The number of people claiming universal credit increased by 865,000 in April 2020. As indicated above, the Bank of England forecast that unemployment could reach 9% by the end of the second quarter. Moreover, a report from the Learning and Work Institute predicts that unemployment could exceed over the 4 million by the end of 2020, with a second wave of redundancies taking place as the coronavirus job retention scheme is gradually withdrawn. The Chartered Management Institute found in a recent survey that 34% of employers are planning to make redundancies, and a report in The Times suggests that the Government believe unemployment could reach as high as 4.5 million by the end of 2020. Indeed, the Learning & Work Institute urge the Government to introduce a "plan for jobs" to tackle the problem, with a third of working aged adults now either unemployed, furloughed, or receiving support through the self-employment income support scheme.
Reaction
Jonathan Athow, the Deputy National Statistician for Economic Statistics, commented upon the record fall in GDP. He states: “April’s fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost ten times larger than the steepest pre-covid-19 fall. In April the economy was around 25% smaller than in February. Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall. Manufacturing and construction also saw significant falls, with manufacture of cars and housebuilding particularly badly affected. The UK’s trade with the rest of the world was also badly affected by the pandemic, with large falls in both the import and export of cars, fuels, works of art and clothing." Nevertheless, the governor of the Bank of England, Andrew Bailey, is optimistic that the UK economy is likely to recover strongly from the record fall in GDP in 2021 as "the fall in output is temporary" and that GDP was likely to return to its pre-coronavirus levels "in the second half of 2021."
