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UK economy shrinks 1.5% in Q1 but bounces back in March

The UK economy contracted in the first quarter as Covid restrictions and the third lockdown weighed, but rebounded in March, according to figures released on Wednesday by the Office for National Statistics.
The economy shrank 1.5%, which was a touch better than the 1.6% decline forecast by economists, and is now 8.7% lower than its pre-pandemic level.

However, in March GDP grew 2.1% on the month following revised growth of 0.7% in February and a 2.5% contraction in January, beating consensus expectations for a 1.4% increase.

ONS director of economic statistics Darren Morgan said: “The strong recovery seen in March, led by retail and the return of schools, was not enough to prevent the UK economy contracting over the first quarter as a whole, with the lockdown affecting much of the services sector.

“However, construction grew strongly over the quarter, and in March, was above its pre-pandemic level. Manufacturing also recovered from an initial fall, increasing strongly in February and March, as businesses continued to adapt and make themselves Covid-19 secure.

“Exports of goods to the EU continued to increase in March and are now almost back to their December level. However, imports from Europe remain sluggish in the first three months of the year, being outstripped by non-EU imports for the first time on record.”

Ruth Gregory, senior UK economist at Capital Economics, said: “The burst of growth in March shows that the recovery has been gathering momentum more quickly than we had thought and suggests that the risks to our forecast for the economy to return to its February 2020 level by the end of 2021 are to the upside.”

She said the 2.1% month-on-month gain was an “impressive” result given that there were few changes in the lockdown restrictions. “The upside surprise came from construction output, which jumped by 5.8% m/m (consensus 1.0% m/m) pushing it 2.4%above its pre-crisis level,” she added.

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