UK economy dropped 2.2% in first three months of 2020 – the largest fall since 1979
THE UK economy crashed by 2.2 per cent in the first three months of the year in the joint-biggest fall since 1979.
It's worse than had been predicted with growth falling by an extra 0.1 per cent, and down 1.7 per cent compared to the same period last year.
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The Office of National Statistics said today that the data changed after the economy plunged by a record 6.9 per cent in March.
The latest figures show the first direct effects of the coronavirus pandemic but not the full impact of lockdown.
Data for the second quarter of the year is expected to be worse, after the economy shrank by a record 20.4 per cent in April.
It comes as the Prime Minister is expected to make a major speech on the economy later today.
What does a falling GDP mean for me?
GROSS domestic product (GDP) is one of the main indicators used to measure the performance of a country's economy.
When GDP goes up, the economy is generally thought to be doing well so today's figures signal that the economy is doing poorly.
Negative growth often brings with it falling incomes, job cuts and lower consumption.
The economy is in recession when it has two consecutive quarters (ie six months) of negative growth.
Following the global financial crisis that started in 2007, UK GDP fell by 6 per cent.
This marked the deepest recession for 80 years.
The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.
This decides how much it will charge banks to lend them money, and is a way to try to control inflation and the economy.
So, for example, if prices are rising too fast, the BoE could increase that rate to try to slow the economy down. But it might hold off if GDP growth is slow.
The BoE cut interest rates twice in March due to coronavirus.
Base rate cuts means mortgage borrowers now typically benefit from lower rates, but at the other end of the scale savers earn less on their savings.
Andrew Wishart, UK economist at Capital Economics, told The Sun the full impact of the crisis on jobs and businesses will only become apparent once the government starts to withdraw its support.
The research firm expects unemployment to double from 4 per cent to 8 per cent, with the same number of companies likely to go bust.
Jeremy Thomson Cook, chief economist at Equals, added: "The falls in GDP are both a sign of what has happened and a signal of what is to come for consumers.
”The former is obvious; Brits aren’t shopping as much due to the fact that most shops were closed in April.
"The signal for the future is that consumption may rebound sharply as things open up, but we expect people to save more of their wages moving forward, cutting consumption in the longer term."
Household spending dropped by 2.9 per cent between January and March this year, down by 1.2 per cent from what experts had estimated.
It's the worst decline in household spending since the Winter of Discontent in 1979, when there were widespread trade union strikes which brought on a recession in the early 1980s.
But households saved more of their disposable income in the first three months of 2020 as a result of the closure of all non-essential shops on March 23.
Around 8.6 per cent of disposable income went into savings compared to 6.6 per cent in previous quarter.
Consumer spending also fell by 2.7 per cent - equal to around £9.5billion - as Brits spent less on cars, eating out, holidays and clothes.
In May, the Organisation for Economic Co-operation and Development (OECD) predicted the UK economy will be the hardest hit among the world's developed countries due to the pandemic.
The latest ONS data shows that Italy's economy shrank by 5.3 per cent in the same quarter - the country sooner than the UK.
France also fell by 5.3 per cent, while Germany dropped by 2.2 per cent, the USA by 1.3 per cent and Japan by 0.6 per cent.
Jonathan Athow, deputy national statistician at the ONS, said: "Our more detailed picture of the economy in the first quarter showed GDP shrank a little more than first estimated - this is now the largest quarterly fall since 1979.
"Information from government showed health activities declined more than we previously showed.
"All main sectors of the economy shrank significantly in March as the effects of the pandemic hit.
"The sharp fall in consumer spending at the end of March led to a notable increase in households' savings."
There are fears millions of Brits could lose their jobs due to the ongoing crisis.
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