Worst still to come for UK GDP

The UK economy shrank by 2% in the first quarter of 2020 as a whole, but by almost 6% in March alone. For context, this latter figure is roughly the same amount shed from peak-to-trough during the financial crisis, which occurred over the course of several quarters. The speed by which this crisis has onset has been alarming.

Admittedly the 2% quarterly decline is less severe than we saw in other parts of Europe, where lockdowns kicked in earlier in March, and in some cases measures were more stringent.

However, there's little doubt that the worst is still to come. The second quarter is likely to see a decline in GDP in excess of 10%, and with the vast majority of lockdown measures likely to persist into June, the risk is that the damage is greater.

The more important question now is what the recovery will look like. In our opinion, the prospects of a ‘V-shape’ recovery have long since faded, and we don’t expect the size of the UK economy to return to pre-virus levels until at least 2022.

There are several reasons for this, but in particular, it is clear that the landscape for many sectors has changed for the foreseeable future, given social distancing measures are likely here to stay until a vaccine or equivalent medical breakthrough occurs. For the hospitality sector for instance, which may be able to open in a limited way from July, returning to a profitable operation could be very challenging in this environment. The likes of restaurants and bars often rely on high-volume, low margin models.

For the wider high street, which the prime minister has signalled could begin to reopen in June, the more immediate challenge will be enticing consumers to visit at all. Recent YouGov surveys have highlighted just how wary individuals are about returning to a range of consumer-facing businesses after lockdown measures have been eased.