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UK economy shrank by 1.5% in Q1 lockdown

Written by: Emma Lunn
UK gross domestic product (GDP) is estimated to have decreased by 1.5% in Q1 (January to March) 2021, according to the Office for National Statistics (ONS).

The data covers a period when a rise in coronavirus cases resulted in renewed restrictions including school, retail and hospitality closures.

A breakdown of the ONS figures show that GDP shrank by 2.5% in January but grew again, by 0.7%, in February, and by 2.1% in March.

The level of GDP in the UK is now 8.7% below where it was prior to the pandemic at the end of 2019. Compared with the same quarter a year ago, when the initial economic impacts of the coronavirus pandemic began to show, the UK economy fell by 6.1%.

According to the ONS in Q1 2021, services output decreased by 2% and is now 8.7% below Q4 2019 levels. The largest contributor to this fall was from the education sector, with strong contributions from accommodation and food services.

The coronavirus restrictions also impacted the wholesale and retail trade sector, which fell by 5.9%. Other personal service activities, which includes hairdressers, fell by 15.8% as coronavirus restrictions closed down this customer-facing sector.

Health was one of the few service sectors that experienced a pickup in Q1 2021, with a 1.8% increase, reflecting the inclusion of the NHS Test and Trace service and coronavirus vaccination adjustments.

Tom Stevenson, investment director for personal investing at Fidelity International, said: “Ahead of a strong pick-up as the economy is unlocked from here, the latest figures give credibility to the recent positive growth forecasts from both the International Monetary Fund, and more recently, the Bank of England. Indeed, today’s monthly estimate shows UK GDP grew by 2.1% in March this year – the fastest monthly growth since August 2020.

“Britain’s economy is recovering lost ground with each step out of lockdown. Signs are cautiously positive that output will return to pre-pandemic levels by the end of the year, but we are not out of the woods just yet. Sterling, the barometer of the UK economy, is likely to pause after its recent strong run.”

Danni Hewson, AJ Bell financial analyst, said: “Today’s GDP figures for March demonstrate the resilience of the British public.  Despite the reopening of schools, the lockdown for many sectors was still very much in place and yet the economy was blossoming. Buoyed by the vaccine rollout houses were being built, cars and motorcycles repaired, and goods being produced in Covid-secure facilities. Recovery with a capital R and this growth has particular significance because it shows how the economy can function if future lockdowns arise.

“That’s further evidenced by the extent of the first quarter contraction, 1.5% is significantly lower than the 4% that had been predicted. There is still a lot of ground to be made up, but March’s figures suggest a quick recovery is within reach.”

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