British economic output in the first quarter was down by two percent on the previous quarter – slightly less than expected, and also in view of its European neighbours, above all France, Italy and Spain, the UK economy has come through the first weeks of the Corona crisis relatively unscathed. However, this is by no means a reason to sound the all-clear.
After all, the British government did not completely „shut down“ the economy until relatively late, on 24 March. In view of the fact that shops and restaurants were only closed for eight days in March, and industry and the construction sector were hampered by the strict exit restrictions for six working days, the losses in March were considerable, at around six percent each in the service sector, construction and the economy as a whole. Services exports alone fell by 20 percent in March, while exports of goods to the euro zone fell by 13 percent.
This casts a dark shadow over the current quarter. The corona epidemic is particularly serious in the UK. Only since this week have there been the first cautious loosening of restrictions on the movement of people – although only in England. By contrast, the retail sector will have to wait until at least the end of May and the restaurant sector until early July before they can gradually reopen. This will put an unprecedented damper on economic performance. We expect a slump of at least twelve percent in the current second quarter. Even in 2020 as a whole, the decline in economic output will at best remain close to single digits. This will make the UK one of the countries in Europe with the highest economic losses.
To make matters worse, at the end of this year there is also the threat of a disorderly withdrawal of Great Britain from the EU internal market. This is because London and Brussels have so far been unable to agree on the basic outlines of a free trade agreement or on an extension of the current transition phase. As long as this risk exists, it will overshadow a possible recovery of the British economy in the second half of the year. Should the UK actually fall back to the WTO level at the beginning of 2021 and customs duties be imposed again in trade with the EU, a relapse of the British economy into recession can hardly be prevented.