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UK economy shrank more than first thought during third lockdown

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The UK economy shrank more than first thought at the start of the year as people spent less during lockdown.

Gross domestic product (GDP) decreased by 1.6 per cent between January and March, revised from the first estimate of a 1.5 per cent decline, according to the Office for National Statistics (ONS).

The level of GDP is now 8.8 per cent below where it was pre-pandemic, during October and December 2019.

The largest contributors to the fall were from the education, wholesale and retail trade, and accommodation and food services industries, in particular at the beginning of the quarter in response to the tightening of Covid restrictions.

The household saving ratio reached 19.9 per cent during January and March up from 16.1 per cent the previous quarter, the second highest on record.

Household spending fell as lockdowns were introduced across the country. Spending in restaurants and hotels fell by 37.2 per cent on the previous quarter while transport fell by 13.9 per cent.

Alastair George, chief investment strategist at Edison Group, said: “The GDP figures today are almost ancient history as they reflect lockdown conditions at the start of the year, rather than the surge in activity which has occurred since then. The data are a reminder of the damage lockdowns wreaked on the economy, even as the UK government provided extensive fiscal support.

“Looking forward, current economic conditions are clearly much improved but later in the year there will be a fiscal headwind as the furlough scheme draws to a close. The outlook now hinges on the success of the UK’s vaccine programme in keeping hospital admissions down to acceptable levels.”

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