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The UK economy grew 0.1 per cent in the three months to February before the coronavirus lockdown hit businesses.

The Office for National Statistics (ONS) data showed the increase was entirely down to the services sector.

The tiny rise, which is measured on a three-month rolling basis, was a slight improvement on the three months to January, when there was no growth.

In February GDP contracted 0.1 per cent, a lacklustre start to the year after the optimism that followed Boris Johnson’s resounding victory at the polls in December.

Thee coronavirus outbreak was already beginning to impact certain sectors of the economy at this stage, the ONS data showed. Travel agencies and manufacturers of transport equipment were the earliest firms to suffer.

A steep drop in the manufacture of transport equipment due to a fall in exports to China as a result of coronavirus was behind the overall weak performance.

Energy production, mining and quarrying all fell.

Growth in the services sector, which increased 0.2 per cent, was enough to push GDP forwards despite contraction in both production and construction.

Production showed the highest fall, dropping 0.6 per cent, while construction slipped 0.2 per cent before the coronavirus lockdown.

The fall in production marked the 10th consecutive three-month decline for the sector.

‘Worse to come’ for UK economy

The impact of the coronavirus lockdown, which has hit almost all shops and businesses, is yet to be seen. But accountant EY said the UK could see contraction of as much as five per cent in March.

This would result in an economic contraction of 1.3 per cent for the first quarter. EY predicted that will grow to an enormous 13 per cent contraction in the second quarter.

The decline will be led by a 14 per cent fall in consumer spending, EY said. A lack of consumer confidence and the closure of pubs and restaurants will underpin this plunge.

For the year as a whole, EY is predicting a contraction of 6.8 per cent. However, that is presuming the coronavirus lockdown is relaxed in the second quarter.

UK can start recovery from coronavirus lockdown in June

Howard Archer, EY’s chief economic adviser, said: “There is no denying that there are substantial downside risks. [But] we believe the economy can start to recover in the third quarter and then see decent activity late on in 2020 and during 2021.

“This is on the assumption that coronavirus peaks during Q2 2020 and the government starts to relax some of the restrictions on people’s movements and on business activity late on in the quarter and further loosens them during Q3.

“However, the government warned at the end of March that normal life in the UK may not return for up to six months”.

By Edward Thicknesse

Source: City AM

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