Profound Shrinkage

The COVID lockdown caused the UK economy to shrink at its fastest monthly pace on record in March.

Image source: Alexandros Michailidis, Andrey_Popov - Shutterstock

What's going on?

The UK economy contracted at its fastest monthly pace on record in March, and it’ll need all the professional help it can get to pull itself together again.

What does this mean?

Even though the country’s lockdown only kicked off in the last week of March, the UK economy shrank almost 6% that month compared to the previous one. That brings its total contraction in the first quarter of 2020 to 2% versus a quarter ago – the biggest fall since the 2008 financial crisis (tweet this). And it was the usual suspects of travel, accommodation, and air transport that were hit the hardest, with economic activity across those sectors almost halving.

The bleak numbers were actually better than expected, but the Bank of England had yet more gloomy forecasts to pile on: namely that it expects the UK economy to shrink by 25% this quarter. It’s perhaps no wonder, then, that the central bank is thinking about new economy-boosting measures, like lowering interest rates further and buying up even more bonds.

Why should I care?

The bigger picture: Remember Brexit?
Months of political uncertainty and now the outbreak mean the UK economy’s failed to grow for three of the previous four quarters. But the most recent of them still outperformed Europe’s latest, with the economy shrinking at roughly half the pace. And with data out on Wednesday showing output from Europe’s crucial manufacturing sector falling at its fastest pace on record in March, that diverging economic performance may well continue for the rest of 2020.

For markets: Bleepbleep–eeeeeeee–chkchkchk–shhhhhhh.
Other data out on Wednesday showed UK retail sales plunging almost 20% in April compared to a year ago, as physical stores closed their doors and shoppers booted up the world wide web. That probably explains why online sales were up 60% from a year ago. Not to say online retailers are now swimming in profit, mind you: Amazon, for example, doesn’t expect to make much of one at all given the $4 billion it’s spending on additional coronavirus expenses.

Originally posted as part of the Finimize daily email.

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