- The UK economy experienced an unprecedented contraction of 20.4% month-on-month in April, with the whole month affected by the coronavirus lockdown imposed on 23 March. This was even deeper than the forecast consensus drop of an 18.4% month-on-month drop
- April’s month-on-month GDP contraction was more than three times the March drop of 5.8%, which had been the previous record monthly decline
- The year-on-year decline in GDP widened to a record 24.5% in April from 5.7% in March. The three-month/three-month decline in GDP widened to 10.4% in April from 2.0% in March
- All sectors witnessed substantial contraction in April, with construction most affected as output fell 40.1% month-on-month with many sites closed. Services output dropped 19.0% month-on-month, with many consumer-facing activities shut through the month, as well as education. Industrial output slumped 20.3% month-on-month with manufacturing output down 24.3% as it was particularly affected by car plants closing
- April highly likely marked the lowest point in UK economic activity. While May was undoubtedly another difficult month for the economy, a number of indicators suggest that the economy saw some improvement compared to April due to a slight easing of lockdown restrictions
- The EY ITEM Club expects record GDP contraction in Q2, likely in excess of the month-on-month 13.0% contraction forecast in April, with falls in consumer spending and business investment. Improvements are expected in June as lockdown restrictions are eased. The economy is seen returning to clear growth in Q3 – assuming a continued easing of restrictions. Full Forecast details will be published soon in an EY ITEM Club Interim Forecast
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“GDP contracted an eye-watering 20.4% month-on-month in April as economic activity was affected by the lockdown for the whole month. This is a new record. While there had been no doubt whatsoever that the April drop in GDP would be substantial, there had been uncertainty as to the actual magnitude. For example, a Reuters survey had put the consensus drop at 18.4% month-on-month with the range of forecasts varying from a decline of 8.3% to a drop of 31.5%.
“April’s GDP contraction was more than three times the previous record monthly decline of 5.8% seen in March, when the economy was only affected by eight days of the lockdown. GDP had already been lacklustre at the start of 2020 despite increased consumer and business confidence after December’s election, edging down 0.2% month-on-month in February after a rise of 0.2% in January.
“The year-on-year decline in GDP widened to a record 24.7% in April from 5.7% in March. It had previously been up by 0.2% year-on-year in February and 0.7% in January.
“The three-month/three-month decline in GDP widened to 10.4% in April from 2.0% in March.
“The ONS observed that the economy was nearly 25% smaller in April than in February. Regarding April’s record drop in GDP, the ONS observed, “Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall.”
Howard Archer adds: “The dominant services sector was markedly affected by the restrictions in April as many consumer-facing activities were shut down, as well as education; output in the sector fell 19.0% month-on-month and 23.2% year-on-year. Services output had previously contracted 6.2% month-on-month in March. It was down by 9.9% in the three months to April compared to the three months to January.
“Industrial production fell 20.3% month-on-month and 24.4% year-on-year in April with manufacturing output down 24.3% month-on-month and 28.5% year-on-year. Industrial production had previously contracted 4.2% month-on-month in April when manufacturing output fell 4.6%. Industrial production was down 9.5% on a three-month/three-month basis in April with manufacturing output down 10.5%.
“Manufacturing output was particularly held back in April by car production essentially coming to a complete halt as plants were shut.
“Construction was the weakest sector in April as many sites closed through the month. Output contracted 40.1% month-on-month and 44.0% year-on-year. This followed a drop in construction output of 5.9% month-on-month in March. Construction output was down 18.2% on a three-month/three-month basis in April.”
"Construction output was particularly affected in April by a drop in housebuilding.”
Howard Archer continues: “The economy looks headed for substantial, record contraction in the second quarter, likely in excess of the 13.0% the EY ITEM Club forecast in April.
“Assuming the Government continues to gradually relax the lockdown restrictions, the economy is expected to start to return to clear growth in the third quarter. Pent-up consumer demand following the lockdown should help, while global economic activity should also be stronger from the latter months of 2020 onwards. There will be challenges, with unemployment likely to rise significantly in the coming months. A full forecast for the economic outlook from the EY ITEM Club will be published shortly.”