GDP first quarterly estimate, UK: January to March 2020

• UK gross domestic product (GDP) in volume terms was estimated to have fallen by 2.0% in Quarter 1 (Jan to Mar) 2020, the largest fall since Quarter 4 (Oct to Dec) 2008.

• When compared with the same quarter a year ago, UK GDP decreased by 1.6% in Quarter 1 2020; the biggest fall since Quarter 4 2009, when it also fell by 1.6%.

• This release captures the first direct effects of the coronavirus (COVID-19) pandemic, and the government measures taken to reduce transmission of the virus.

• There has been a widespread disruption to economic activity, as services output fell by a record 1.9% in Quarter 1; there were also significant contractions in production and construction.

• Household consumption fell by 1.7% in Quarter 1 2020, the largest contraction since Quarter 4 2008, alongside declines in gross fixed capital formation, government consumption and trade volumes.

Gross domestic product (GDP) growth is the main indicator of economic performance. There are three approaches used to measure GDP:

• the output approach

• the expenditure approach

• the income approach

Further information on all three approaches to measuring GDP can be found in the Guide to the UK National Accounts.

In producing a balanced estimate of GDP, we reconcile information on the output, expenditure and income measures of GDP. In our first quarterly estimate, output tends to paint a more reliable picture of what is happening overall in the economy, and so balancing adjustments are applied to the expenditure and income components of GDP where required to align to output; these tend to be applied to components where data content is comparatively weak, or estimates are prone to revision.

Data in chained volume measures within this bulletin have had the effect of price changes removed (in other words, the data are deflated), except for income data, which are only available in current prices.

Impact of the coronavirus

In response to the coronavirus (COVID-19) pandemic, we are working to ensure that we continue to publish economic statistics. For more information please see COVID-19 and the production of statistics.

This release captures the first direct effects of the coronavirus pandemic and the government measures taken to reduce transmission of the virus. Because of the disruption to business and implementation of these government measures, which include restrictions in movement, we faced an increased number of challenges in producing this first quarterly estimate of GDP for the UK. These challenges include lower than usual response to surveys that feed into this estimate. For more information on response rates, please see the quality and methodology section of this release.

More detailed information on the challenges and the steps taken to mitigate them can be found in Coronavirus and the effects on UK GDP.

As a result of these challenges, GDP estimates for Quarter 1 (Jan to Mar) 2020 are subject to more uncertainty than usual. Users are advised that some components of the three approaches to measuring GDP should be interpreted with caution. More information can be found in the output, expenditure and income sections of this bulletin.

In view of the heightened uncertainty, estimates in this release are likely to have larger than usual revisions in subsequent releases.

UK gross domestic product (GDP) is estimated to have fallen by 2.0% in Quarter 1 (Jan to Mar) 2020, following flat GDP in the fourth quarter (Oct to Dec) of 2019.

This is the largest quarterly contraction in the UK economy since the 2008 global financial crisis and reflects the imposing of public health restrictions and voluntary social distancing put in place in response to the coronavirus (COVID-19) pandemic. The UK economy fell by 1.6% compared with the same quarter in the previous year (Figure 1), a decline last equalled in Quarter 4 2009.

The decline in the first quarter largely reflects the 5.8% fall in output in March 2020, with widespread monthly declines in output across the services, production and construction industries. While we advise against putting too much weight on one month's data, these data are helpful in understanding the broader picture. More information on the monthly profile of GDP can be found in the GDP monthly estimate, UK: March 2020 release and Coronavirus and the impact on production and services, UK: March 2020.

Several countries have published first estimates of GDP for the first quarter of 2020, including the United States, France and Italy amongst the G7 countries. These initial estimates highlight how the coronavirus pandemic and the response to it has impacted upon the global economy. The Resolution Foundation has highlighted that the size of these effects (PDF, 323KB) will reflect "the duration of the outbreak, the public health restrictions imposed to contain the spread of the virus, and other voluntary social distancing measures that people take to reduce their chances of catching it".

The Oxford COVID-19 Government Response Tracker captures this information by collecting information on government policy responses to create a "stringency" index. Figure 2 plots the stringency index values in Quarter 1 2020 against quarterly GDP growth over the same period for a selection of countries. It shows that there is a negative correlation – higher stringency of lockdowns is associated with lower GDP growth. When compared internationally, it implies that the size of the contraction in the UK economy in Quarter 1 is broadly in line with what might be expected, given the policies that have been put in place in the UK.

Figure 2: Greater stringency of lockdowns is associated with lower GDP growth in the first quarter

Quarter 1 (Jan to Mar) 2020

Nominal GDP fell by 1.4% in Quarter 1 2020, its largest contraction since the first quarter of 2009.

The implied GDP deflator represents the broadest measure of inflation in the domestic economy, reflecting changes in the price of all goods and services that comprise GDP. This includes the price movements in private and government consumption, investment and the relative price of exports and imports. The implied deflator strengthened in the first quarter, increasing by 0.6%. Compared with the same quarter a year ago, the implied GDP deflator increased by 1.7%, a slight easing from the previous quarter. Movements in the implied deflator are broadly in line with recent movements in consumer price inflation.

In response to the coronavirus (COVID-19) pandemic, public health restrictions and social distancing measures have been put in place in the UK, leading to a widespread disruption to economic activity. These measures have impacted upon the spending behaviours of consumers as well as how businesses and their employees operate. It has also affected the provision of services provided by government, including health and education.

Services output decreased by 1.9% in Quarter 1 (Jan to Mar) 2020, the largest quarterly fall since records began. Production output fell by 2.1% in Quarter 1 2020, driven by declines in manufacturing. Construction output decreased by 2.6% in the first quarter (Figure 3). The monthly figures corroborate that these estimates reflect the declines recorded in March 2020, when restrictions were imposed in response to the coronavirus.

Services

Services output decreased by 1.9% in Quarter 1 2020 (Figure 4), driven by the 6.2% monthly decline in March. The quarterly fall reflects declines in the vast majority of industries, most notably education, wholesale and retail trade and repair of motor vehicles and motorcycles, food and beverage, accommodation and travel agencies. Despite falls throughout the services sector, a small number of sub-industries such as computer programming showed growth.

The decline in services output in the first quarter is reflected in the March IHS Markit UK Services PMI (PDF, 164KB), which reported a survey-record fall in activity caused by business shutdowns and cancelled orders in response to the coronavirus pandemic. Reductions in activity were broad-based, reflecting sharp falls in business and consumer spending. Travel restrictions were cited as adversely impacting on export orders, while "technology services were the only area to signal a rise in business activity".

Output in wholesale and retail trade fell by 3.0% in the first quarter, as many of these services were impacted by voluntary and involuntary social distancing. There was a 4.9% fall in transportation and storage, specifically in land transport services and transport services via pipelines, which fell 5.3%, whilst accommodation and food services output declined by 9.5%.

According to official retail sales figures, the volume of retail sales fell by 1.6% in the first quarter, with significant declines in non-food stores. This is corroborated by the latest Bank of England Agents' Summary of Business Conditions, which reported "a sharp decline in spending on consumer services and non-food goods", adding that the travel, leisure and hospitality sectors were the most affected.

Meanwhile, output of education is estimated to have dropped by 4.0% in Quarter 1 2020, driven by the partial closure of schools from 23 March onwards as part of the UK government's response to the coronavirus pandemic.

A recent ONS statement highlighted the challenges in estimating health and education output because of the coronavirus pandemic and the policy response. Further information about how we have adapted our usual approach to measuring education output is available in Coronavirus and the impact on measures of UK government education output.

Government and other services fell by 2.0% in Quarter 1 2020, reflecting a 1.0% fall in health and social work activities and 4.0% reduction in education. For more information on health and education estimates in Quarter 1, please refer to the Expenditure section of this release.

There was a 1.4% increase in output in computer programming, reflecting increased demand for information technology and related services to support remote working as new measures that came into effect on Monday 23 March requiring non-key workers to work from home where possible.

Production

Production output fell by 2.1% in Quarter 1 2020, marking the fourth consecutive quarterly decline (Figure 5). This was mainly driven by the 4.2% monthly decline in production output in March, reflecting falls in all four sectors. The quarterly contraction in output reflects declines in manufacturing, mining and quarrying, and electricity, gas, steam and air output, with water supply and sewerage output being the only industry to increase output in the first quarter.

Manufacturing output fell by 1.7% in Quarter 1 2020, signalling its fourth consecutive quarterly contraction. The decline was driven by decreases in the manufacture of transport equipment, machinery and equipment not elsewhere classified, and textiles, partially offset by increases in the manufacture of pharmaceutical, chemical and wood and rubber and plastic products (Figure 6).

External survey evidence further corroborates the decline in manufacturing output. The March IHS Markit UK Manufacturing PMI (PDF, 164KB) reported that UK manufacturing output fell to the greatest extent since mid-2012, reflecting "disruption resulting from the coronavirus outbreak, lower market confidence and company shutdowns". Similarly, the latest Bank of England Agents' Summary of Business Conditions stated that "a combination of supply-chain disruption, declining demand and measures to avoid contagion" resulted in a considerable weakening in manufacturing output.

Manufacturing output of transport equipment fell 9.9% in the first quarter, largely reflecting a 16.3% decline in motor vehicle manufacturing caused by factory shutdowns in March in response to the coronavirus pandemic. This is broadly in line with data from the Society of Motor Manufacturers and Traders (SMMT), which showed a decrease in UK car manufacturing in March because of car plant closures. The SMMT figures show that UK car manufacturing fell by 37.6% in March 2020 compared with the same month in the previous year, with an overall fall of 13.8% in car manufacturing in Quarter 1 2020 compared with the same quarter in 2019.

Meanwhile, the manufacture of pharmaceutical products increased by 9.2%, driven by stronger than usual demand for medicinal products. However, we were unable to highlight any vaccine-related impact to help combat the virus. There were also increases in the manufacture of chemical products, likely to be reflecting increased demand (in part linked to consumer stockpiling) of soaps and cleaning products in response to the coronavirus pandemic.

Similarly, consumer stockpiling may explain the increases in the manufacture of paper products as well as meat and grain products as consumers stockpiled on essential items. These trends were also picked up in the latest official retail sales release, which cited "panic buying, or stockpiling during the coronavirus (COVID-19) pandemic" as a potential driver behind the increase in turnover in food stores.

Following a decline of 2.7% in Quarter 4 2019, mining and quarrying output fell 5.2% in the first quarter of 2020, largely as a result of widespread maintenance shutdowns within oil and gas extraction. This represents the largest quarterly drop since Quarter 4 2016. Output of electricity, gas, steam and air fell by 5.8% in Quarter 1 2020, driven by a fall in industrial demand for electricity caused by the temporary closures of businesses.

Construction

Construction output fell by 2.6% in the first quarter of 2020. The fall reflects monthly declines in both February and March. In February, construction output fell by 2.1% because of poor weather, while in March, output fell further (5.9%), likely reflecting the containment measures that have affected labour availability. The decline in the first quarter is the largest since Quarter 2 (Apr to June) 2012.

The quarterly fall reflects declines in both new work, and repair and maintenance. External evidence, such as the March IHS Markit UK Construction PMI (PDF, 154KB), reported that construction output declined at the steepest rate since April 2009 because of "stoppages of work on site and a slump in new orders". It cited the impact of the coronavirus pandemic as the main reason for lower activity, with falls in output across the three broad categories of housing, commercial and civil engineering.

The latest Bank of England Agents' Summary of Business Conditions pointed to evidence of "projects being postponed, either due to economic uncertainty or because of delays caused by planning office closures", adding that there were also some concerns that "a deterioration in housing market activity would weigh on housebuilding".

Private consumption

Household consumption fell by 1.7% in Quarter 1 (Jan to Mar) 2020, the largest contraction since Quarter 4 (Oct to Dec) 2008. Some types of household consumption are likely to be particularly affected while social distancing is in place, especially those types of spending that are more reliant on physical interaction or those that relate to travel.

External survey evidence reinforces this weakness in consumer demand. The GfK interim COVID-19 flash report found that UK consumer confidence fell sharply to negative 34 in the last two weeks of March, stating that "the last time we saw such a decline was during the 2008 economic downturn".

Alongside this release we have published a more detailed breakdown of household final consumption expenditure than usual in the GDP first quarterly estimate. This is to enable users to see areas where we have more complete data and those areas where we have had to make judgements.

It is important to note that estimates in this GDP first quarterly estimate release are more uncertain at this stage, which reflects lower data content when compared with estimates published at the GDP quarterly national accounts stage.

The decline in household consumption in the first quarter of the year was driven by falls in spending on transport, restaurants and hotels, and clothing and footwear, in line with expectations of the effects of social distancing that was put in place in March. However, these were partially offset by higher spending on food and drink, and alcohol and tobacco. There was also an increase in spending in the recreation and culture category, which includes items such as televisions and audio-visual equipment.

The latest official retail sales figures point to lower spending on clothing, with a sharp fall in clothing store sales in March as consumers focused their spending on essential purchases such as food. Similarly, the latest Bank of England Agents' Summary of Business Conditions stated that there was a "sharp decline in spending on consumer services and non-food goods", highlighting that the travel, leisure and hospitality sectors were the most affected. The report contrasted this with the consumer stockpiling, which "led to a surge in demand at supermarkets, with sales exceeding Christmas levels".

The decline in transport spending is in line with Department for Transport figures, which show a decline in transport use in Great Britain during the second half of March as a result of the imposition of social distancing rules. The data show a decline in transport use across motor vehicles, National Rail, the London Underground (Transport for London (TfL)) and bus travel (TfL). Furthermore, recent data from the Society of Motor Manufacturers and Traders (SMMT) show that new car registrations fell by 44.4% in March, reflecting the closure of showrooms in response to government advice to contain the spread of the coronavirus.

Government consumption

Government consumption decreased by 2.6% in Quarter 1 2020, reflecting declines in health and education expenditure. In volume terms, healthcare consumption fell by 2.5% whilst education consumption fell by 6.5% in the first quarter.

The initial impact of the coronavirus on government healthcare consumption was mixed, with increased activity in some areas (calls to NHS 111) and reduced activity in other areas (elective operations and accident and emergency).

The fall in estimated education consumption was a result of school closures across the UK, with schools closed to all from 23 March, except for vulnerable pupils or those whose parents or guardians are key workers. We include the education consumed by pupils who are learning at home using materials provided by teachers. For more information on estimates of education consumption in this release please refer to Coronavirus and the impact on measures of UK government education output.

Gross capital formation

Gross fixed capital formation (GFCF) fell by 1.0% in the first quarter of 2020, marking the second consecutive quarter of decline. The first quarter outcome reflected falls in investment in dwellings as well as government investment.

Business investment was flat in the first quarter of 2020 (Figure 8). According to the latest Bank of England Agents' Summary of Business Conditions, investment intentions had improved slightly at the start of 2020 following the general election in December 2019. However, the uncertainty created by the coronavirus developments in the last few weeks of the first quarter meant that some companies were "halting investment plans and retaining cash buffers, in particular in retail, leisure, travel and hospitality", though noting that companies in other sectors were planning to proceed with investment plans aimed at reducing staffing costs and improving efficiency.

The Quarter 1 2020 Decision Maker's Panel reports that "81% of businesses reported that COVID-19 was one of the top three sources of uncertainty for their business", adding that "the percentage who thought that COVID-19 was an important source of uncertainty for their business in the March survey exceeded the previous peak for Brexit uncertainty of 58%". Meanwhile, the latest Deloitte CFO Survey stated that business confidence had declined to its lowest ever level, as chief financial officers (CFOs) expect a protracted hit to demand. The majority of CFO respondents expected demand to recover to pre-pandemic levels after the second quarter of 2021.

Dwellings investment fell by 3.2% in the first quarter of 2020, reflecting falls within private sector new housing, and repair and maintenance. Investment was impacted by adverse weather conditions in February 2020 and government restrictions relating to the coronavirus in March 2020. More information on this can be found in the latest Construction output in Great Britain release. Government investment fell by 1.9% in Quarter 1 2020.

Alignment and balancing adjustments are typically applied to the inventories component to help balance the different approaches to GDP – more detail on these can be found in the Quality and methodology section of this bulletin. Therefore, the unadjusted data provide a better understanding of the change in the inventory position of businesses. Here, the underlying data show a substantial decrease of £6.8 billion in stocks being held by UK companies in Quarter 1 2020 (Table 2). This was led by a fall in the level of stocks held within the wholesale and retail trades.

Respondent-led evidence suggests that the decline in stock levels in the wholesale industry was largely a result of firms facing increased difficulty obtaining stock from within the UK and abroad, whilst the decline in the level of stocks held within the retail industry was predominantly because of increased consumer spending on household goods and food and drink.

Evidence from external surveys on business stockpiling was mixed. According to the March IHS Markit UK Manufacturing PMI (PDF, 168KB), pre- and post-production inventory levels decreased in March, reflecting "production delays and longer times taken to receive input purchases". However, the report adds that "there were some firms that reported attempts to build up stocks in response to the uncertainty caused by COVID-19". In other survey evidence, the March CBI Industrial Trends Survey stated that stock adequacy in the manufacturing sector was in line with its long-run average.

An upwards contribution came from valuables, which offset the downwards drag on gross fixed capital from GFCF and the change in inventories.

Trade

Today's estimates show that the UK posted a trade deficit of 0.9% of nominal GDP in the first quarter of 2020 (Figure 9). This represents a marked deterioration in the trade balance from the previous quarter, when the UK had posted a trade surplus, although this was largely driven by the often-volatile movements in precious metals, which include non-monetary gold.

The coronavirus pandemic has led to a marked fall in global trade demand, whilst restrictions have also disrupted international supply chains that might have impacted on the trade intensity of demand. Export volumes declined by 10.8% in the first quarter, whilst import volumes fell by 5.3%. For more detailed analysis on Trade movements in Quarter 1 2020, please refer to the UK trade release.

External survey evidence points towards weakened exports activity in the first quarter. The March IHS Markit UK Manufacturing PMI stated that new export business declined at the fastest rate since July 2012 “as the outbreak of COVID-19 led to lower demand from across the global economy”. According to the monthly CBI Industrial Trends Survey, "manufacturers reported that both total and export order books worsened considerably" in March compared with the previous month. Meanwhile, the latest Quarterly Economic Survey (PDF, 1.03MB) by the British Chambers of Commerce reports that "export activity in the manufacturing sector remained underwhelming", adding that indicators for export activity in the services sector were at their lowest levels since 2011.

Nominal gross domestic product (GDP) fell by 1.4% in Quarter 1 (Jan to Mar) 2020, predominantly driven by a decline in taxes less subsidies (Figure 10). This is the largest quarterly fall in nominal GDP since Quarter 1 2009.

There is increased uncertainty around the income measure of GDP in this publication; as such users are advised to treat the estimates with caution. The increased uncertainty relates, in part, to treatment of employment schemes established by the UK government in response to the coronavirus (COVID-19) pandemic. A recent article explains how we will be treating the Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS) in the national accounts.

The GDP first quarterly estimate contains limited availability of labour market indicators, compared with subsequent estimates. For example, compensation of employees' data for the final month of the quarter is not yet available. Statistical forecasts have been made for March 2020 containing a number of assumptions, leading to additional uncertainty; as such estimates should be treated with caution. More information can be found in the Quality and methodology section of this release.

Compensation of employees (CoE) increased by 1.6% in Quarter 1 2020, reflecting a 1.2% increase in wages and salaries and a 3.5% increase in employers' social contributions. Gross operating surplus (GOS) of corporations fell by 2.9%, the second consecutive quarterly fall.

According to the latest EY UK profit warnings report, UK companies issued 301 profit warnings in Quarter 1 2020; this is a 238% increase from Quarter 1 2019 and more than double the previous high in Quarter 4 (Oct to Dec) 2001. The report highlights that 77% of profit warnings cited the coronavirus, with travel and leisure being the most affected industry.

Taxes less subsidies fell by 13.6% in Quarter 1 2020. The fall was a combined result of a decline in tax revenue and an increase in subsidies granted, primarily related to the CJRS. The decline in tax revenue was driven by falls in VAT receipts, and fuel, beer, tobacco and air passenger duties. The estimate for subsidies includes an initial estimate of £7 billion for the CJRS subsidy. This estimate is based on the Office for Budget Responsibility (OBR) coronavirus reference scenario and it will be revised when updated data are available. Estimates of the Self Employment Income Support Scheme have not been made as the details of claims under this scheme are not yet available.

Transactions are recorded on an accrual basis within the national accounts. Therefore whilst payments may not be completed on a cash basis, for reporting purposes the transaction is registered at the point when it was adjudged to take place.

A number of other economic indicators were published on 13 May 2020, these include:

• GDP monthly estimate, UK: March 2020

• Coronavirus and the impact on production and services, UK: March 2020

• Construction output in Great Britain: March 2020

• UK trade: March 2020

• Data for gross fixed capital formation (GFCF) by sector and asset, revision triangles and a real-time database

All data in this bulletin are seasonally adjusted estimates. Non-seasonally adjusted data are available within the UK Economic Accounts (UKEA). These data can be downloaded directly from the UKEA dataset and on the UKEA main aggregates dataset table. Data published in the UKEA reflect data as published on 31 March 2020 and are consistent with the data in this release.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Gross domestic product (GDP) QMI.

The national accounts are drawn together using data from many different sources. This ensures that they are comprehensive and provide different perspectives on the economy; for example, sales by retailers and purchases by households.

Important quality information

There are common pitfalls in interpreting data series, and these include:

• expectations of accuracy and reliability in early estimates are often too high

• revisions are an inevitable consequence of the trade-off between timeliness and accuracy

• early estimates are based on incomplete data

Very few statistical revisions arise as a result of "errors" in the popular sense of the word. All estimates, by definition, are subject to statistical "error".

Many different approaches can be used to summarise revisions; the "Accuracy and reliability" section in the Quality and Methodology Information report analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.

Reaching the GDP balance

The different data content and quality of the three approaches – the output approach, the expenditure approach and the income approach – dictates the approach taken in balancing quarterly data. In the UK, there are more data available on output in the short-term than in either of the other two approaches. However, to obtain the best estimate of GDP (the published figure), the estimates from all three approaches are balanced to produce an average, except in the latest two quarters where the output data takes the lead because of its larger data content.

Information on the methods we use for Balancing the output, income and expenditure approaches to measuring GDP is available.

Alignment adjustments, found in Table M of the GDP first quarterly estimate data tables in this release, have a target limit of plus or minus £2,000 million on any quarter. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed.

To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the components of GDP where required. They are applied to the individual components where data content is particularly weak in a given quarter because of a higher level of forecast content.

The balancing adjustments applied in this quarter are shown in Table 3, the resulting series should be considered accordingly.

Coronavirus (COVID-19) impact on response rates

Figure 11 highlights a decline in response rates for surveys that feed into the GDP first quarterly estimate for Quarter 1 2020. We have undertaken a significant amount of work to ensure that the effect on the quality of estimates in this release are mitigated as much as possible. These include focusing resources on main respondents and industries, methodology reviews including but not limited to seasonal adjustment, forecast and imputation, and the utilisation of additional sources of data (in quality assurance). More information on the measures taken can be found in Section 6 of Coronavirus and the effects on UK GDP.

One area where response rates have been particularly affected is construction. We generally apply a bias adjustment to early construction estimates to account for late survey response. In light of the higher level of non-response in relation to March 2020 data and to ensure that there is no significant non-response bias in our estimates, we reviewed our bias adjustment approach and have taken action accordingly.

The Quarterly Operating Profits Survey is currently under review and we are using a range of external estimates to quality assure these figures. The Quarterly Survey of International Trade in Services often has low response at this publication stage and we have reviewed our imputation methodology ahead of this estimate.

Quarterly Stocks Survey temporary expansion

The Quarterly Stocks Survey (formerly Inquiry) is used in the compilation of the changes in inventories component. To address users' concerns about the sample size of the survey and the potential impact on quality, we temporarily increased the sample size from 5,500 to 9,500 businesses for Quarter 2 (Apr to June) 2019. We have continued to boost the sample in subsequent quarters and will continue to do so until further notice.