Coronavirus: Economy endures 'largest quarterly fall since 1979'

James Sillars, business reporter

The UK economy contracted at a sharper rate than initially thought in the first quarter of the year as the coronavirus crisis gathered speed, according to official figures.

An update from the Office for National Statistics (ONS) covering the first three months of 2020 showed gross domestic product (GDP) fell by 2.2% compared with the previous quarter.

It had previously given an initial reading of 2%.

Analysts said the revised figure meant the economy had endured its worst quarterly fall since 1979.

However, that statistic is expected to be blown out of the water as the second quarter covering April to June comes to an end.

The ONS has already reported a decline of 20.4% in GDP covering April alone - signalling the deepest slump in living memory as the effects of the UK coronavirus lockdown are realised, despite government support for businesses and wages.

The latest Treasury figures, released later on Tuesday, showed just over one million loans totalling almost £43bn had been handed out to firms under the three loan schemes administered by banks.

The Job Retention Scheme for furloughed workers was supporting the wages of 9.3 million workers on Sunday, the figures showed, at a cost of £25.5bn to date.

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."

The ONS figures also revealed that the current account deficit - a measurement of trade where the value of the goods and services it imports exceeds the value of the products it exports - widened by more than expected over the three months.

The balance of payments deficit grew to £21.1bn.

Economists had expected a figure closer to £16bn.

The ONS released its data as the government steps up its efforts to support economic recovery, with PM Boris Johnson announcing plans to accelerate the UK's "infrastructure revolution" and cut red tape.

Having ruled out a return to the post financial crisis-era of austerity, how the spending spree will be funded has sparked a debate with pressure mounting on the government to announce targeted tax increases to help offset a predicted budget deficit of the like not seen since the end of the Second World War.

Dr Jonathan Gillham, PwC chief economist, said of the ONS figures: "This data highlights the unprecedented impact the lockdown had on the UK economy and shows the UK is heading into recession.

"Despite the gloominess, it is also broadly in line with expectations given the scale of the lockdown required to deal with the challenges presented by COVID-19."