Chancellor of the exchequer Rishi Sunak. Picture: REUTERS/JOHN SIBLEY
Chancellor of the exchequer Rishi Sunak. Picture: REUTERS/JOHN SIBLEY

London — Britain's economy shrank in the first quarter at the fastest pace since the 2008 financial crisis as the country went into lockdown over the coronavirus, official data showed Wednesday, leaving it on the brink of recession with a far worse contraction to come.

GDP — the combined value of produced goods and services in the UK economy — contracted by two percent in the January-March period after zero growth in the three months to December, the Office for National Statistics (ONS) said in a statement.

First-quarter activity was impacted also by Brexit, or Britain's long-awaited departure from the European Union on January 31.

Despite the data, the UK pound managed to edge ahead against the dollar and euro, with analysts pointing to the fact that markets had expected a bigger contraction.

London's FTSE 100 stocks index, a lesser indicator of the health of Britain's economy owing to the presence of many multinationals, was down 0.9% approaching midday.

Britain's second-quarter contraction is expected to be far steeper than the first, tipping the country into recession — which is defined as two successive quarters of contraction.

UK output dived by a record 5.8% in March alone, when Britain went into lockdown, the ONS said.

'Economy in free fall'

“March's GDP figures showed that the UK economy was already in free fall within two weeks of the (coronavirus) lockdown going into effect,” said Capital Economics analyst Ruth Gregory.

“And with the restrictions in place until mid-May and then only lifted very slightly, April will be far worse.

“To put this into context, during the whole of the 2008/2009 recession, output fell by 6%," she said.

The Bank of England (BoE) last week warned that the economic paralysis could lead to Britain's worst recession in centuries, with output forecast to crash 14 percent this year.

Britain is not alone, however, with the economies of France and Italy shrinking 5.8% and 4.7% respectively in the first quarter.

Britain implemented its Covid-19 lockdown — which is only just starting to be eased — on March 23.

“With the arrival of the pandemic, nearly every aspect of the economy was hit in March, dragging growth to a record monthly fall,” said Jonathan Athow, deputy national statistician for economic statistics at the ONS.

“The pandemic also hit trade globally, with UK imports and exports falling over the last couple of months, including a notable drop in imports from China.”

Britain has seen more than 32,000 deaths in the outbreak — the worst in Europe and second only to the US — although there are indications that the true toll is higher.

As the coronavirus crisis took hold in Britain, finance minister Rishi Sunak backed up employee wages in a so-called “furlough” jobs retention plan, while he has given tax holidays to businesses and boosted welfare payments.

Sunak on Tuesday announced the furlough scheme would be extended until the end of October.

The government's furlough scheme is supporting 7.5-million jobs, ensuring employees receive 80% of their monthly pay up to £2,500.

The BoE has also played its part, slashing its main interest rate to 0.1% and pumping £200bn into the UK economy to get retail banks lending to hard-hit businesses.

This week, meanwhile, Prime Minister Boris Johnson has begun to relax some of lockdown measures.

Changes that came into force on Wednesday allow people to spend more time outside, meet a friend at the park and view property for sale. Britons however remain unable to visit relatives or friends at their homes.