MNI DATA IMPACT: UK GDP Slumps In Q1, But Beats Expectations

--UK March Output Suffers Largest Fall on Record

By Laurie Laird

     LONDON (MNI) - The UK economy contracted in Q1 at a pace last suffered at

the onset of the financial crisis, recording the largest single-month fall on

record in March, but managed to beat the dire forecasts of private-sector

economists and the Bank of England.

     The following are the main points from the first quarter gross domestic

product report released on Wednesday by the Office for National Statistics.

     --GDP retreated by 2.0% in the opening three months of the year, the

biggest fall since Q4 2008. Bank of England staff forecast a 3.0% slump in Q1,

while economists polled by Reuters predicted a 2.5% decline. On an annual basis,

output declined by 1.6%, the largest fall since Q4 2009.

     --The UK economy outperformed the eurozone, which slumped by 3.8% in Q1 as

many economies went in to lockdown earlier than Britain. U.S. output declined by

1.2% in the same period.

     --While the Q1 outturn beat expectations, most forecasters regard

Wednesday's release as largely ancient history in an unprecedented economic

downturn. Most economists are bracing for a double-digit fall in Q2 GDP.

     --Output plunged by 5.8% in March, the largest fall on record, after the

government announced a near-total economic shutdown on March 23rd. Service

output plunged by 6.2%, the largest fall in a series dating back to 1997, while

construction slumped by 5.9%, the biggest fall since the series began in 2010.

     --Over Q1, services exerted the biggest drag on GDP, accounting for 1.55

percentage points of the total fall. Distribution, hotels and restaurants

accounted for a large chunk of the decline, while government services,

particularly on education, also weighed on GDP.

     --Perhaps defying conventional wisdom, health care output fell by 2.5% in

Q1, due largely to reductions in elective procedures and A&E visits. However, a

National Statistics official cautioned that data underlying the health sector

were largely based on forecasts and are subject to revision.

     - The Q1 GDP estimate derives from a smaller-than-usual sample, due to

reduced responses to business surveys during the economic shutdown. The

shortfall was particularly pronounced in construction, where the 5.9% quarterly

decline was based on a response rate of 40%, down from 62% a year ago.

     - A National Statistics official was unable to comment on whether the

reduced response rate may lead to revisions in later estimates of GDP, as some

responses may arrive late, while some may not arrive at all.

     - Household spending slid by 1.7%, the biggest decline since Q4 2008,

erasing 1.10 percentage points from GDP. Last week, the Bank of England referred

to a 30% decline in consumer outlays following the economic shutdown in late

March, while data from the London Business School suggest a 40% plunge.

     - Business investment was flat on Q1, following a 0.5% slump in Q4.

Investment has declined in just one quarter over the last five, but Bank of

England staff forecast a 50% plunge in business investment in Q2.

     - Exports fell by 10.8% in Q1, while imports declined by 5.3%. Net trade

subtracted 1.91 percentage points from GDP.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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