U.K. economic activity declines sharply in April, growth likely to shrink about 23 pct in Q2 2020

U.K. economic activity saw the sharpest monthly decline on record in April. Activity fell 20.4 percent month-on-month as the maximum effect of lockdown restrictions was being widely felt. The fall in April GDP was bigger than consensus expectations of a fall of 18.7 percent, and signifies that growth on rolling three-month basis also turned negative, falling from +0.1 percent to -10.4 percent in the three months to April.

Delving into detail, falls were widespread throughout the three main categories. Services sector saw a fall of 19 percent, whereas the industrial production and construction output saw falls of 20.3 percent and 40.1 percent, respectively.

Together with the fall in March activity, today’s data signifies that the level of U.K. GDP is around 25 percent below its pre-COVID 19 peak, and leaves the economy on track to register its sharpest quarterly fall on record in the second quarter.

“If we were to assume that the level of economic activity across both May and June was unchanged from April, that would imply a ~23 percent fall in Q2 GDP. For context, this compares with estimated declines of 25 percent and 35 percent respectively from the Bank of England (BoE) and Office for Budget Responsibility (OBR)”, said Lloyds Bank in a research report.

Nevertheless, with lockdown restrictions being eased from late May, it appears possible that output would have picked up over the remainder of the quarter. This might indicator towards the second quarter GDP proving slightly less negative than the BoE currently expects.

“Admittedly, significant uncertainty remains around the outlook for the second half of the year. However, for now today’s outturn should at least reduce concerns on the MPC that it needs to deliver an aggressive policy response at its meeting next week”, added Lloyds Bank.