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UK economy could shrink by quarter if lockdown persists

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Police community support officers patrol Brighton beach, south England, as the UK continues in lockdown to help curb the spread of the coronavirus. (Andrew Matthews/PA via AP)

The UK economy could contract by as much as a quarter if the current lockdown continues into the summer, a leading economic research institute has warned.

The National Institute of Economic and Social Research (NIESR) said on Thursday 9 April that the UK’s GDP could shrink by 15% to 25% in the second quarter of 2020 if the coronavirus lockdown persists until June, when the second quarter ends.

The lockdown is causing the largest slump in economic output since the depression of 1921, NIESR said. The government three weeks ago ordered all non-essential shops to shut and told people to stay at home as much as possible, bringing the economy to near standstill overnight.

“The UK economy is now almost certain to experience a major contraction in the second quarter of the year,” Dr Kemar Whyte, a senior economist of macroeconomic modelling and forecasting at NIESR, said in a statement. 

“The forceful impact of COVID-19 and the global lockdown has thrust the economy into unknown territory where we could see GDP declining at a record quarterly rate.”  

The stark warning came as official government statistics showed the UK economy grew by just 0.1% in the three months to February — before the full impact of the coronavirus pandemic hit the UK. NIESR said it expects GDP to shrink by 5% in the first quarter of 2020.

Despite the downbeat assessment of short-term growth, Dr Whyte said “instant and significant recovery remain a distinct possibility if the spread of the virus comes to halt quickly.”

Read more: Bank of England to finance additional UK government spending

The UK government has sought to limit the economic fallout from the coronavirus pandemic by announcing billions of pounds in support to prop up the economy. This includes loans to small businesses to stop them going bust and wage support for employees to prevent them being laid off.

The government hopes these measures will allow companies to quickly resume business once the crisis ends. It means that the annual decline in GDP is unlikely to be as stark as quarterly figures suggest.

NIESR is Britain’s oldest independent economic research institute and its work is widely read by top financial decision makers around the world.