UK economic fallout amidst the Covid-19 pandemic: Is the worst behind?


  • Overview of the UK economy
  • Sector-wise analysis as a result of the economic downturn
  • Recovery in economic activity post ease of lockdown restrictions


The sixth largest economy in terms of the nominal gross domestic product (GDP) and ninth largest by purchasing power parity (PPT), the United Kingdom stands as one of the most developed countries of the world. However, the economy has experienced a significant shock since the advent of the coronavirus pandemic with staggering decline in the GDP growth rate which shrank by 19.1% since February 2020 levels. The current fall in the GDP is the steepest in the last 40 years and way above the 2.1% shrinkage in the GDP growth witnessed during the 2008 economic recession.


Like other countries, UK was also affected by the economic and health issues as Coronavirus impacted movement of people and goods all across the world since the start of the year, initially in parts of China and later in almost all regions of the globe. UK economic growth slipped by 2.1% during the fourth quarter ended March 2020 however, the impact worsened during the rolling three months ended May 2020 as the GDP growth wobbled down by 19.2% with major sectors of the economy like production, construction and services hit significantly.


As seen from the chart above, all the crucial sectors contributing to the GDP turned negative in the three months ending May 2020. The hospitality sector witnessed the highest brunt with growth rate falling by massive 71.7% followed by education and construction. However, when we analyse the impact each sector had to the whole economic downturn of 19.1% during the 3 months period, we noticed that service sector, which has the highest share in the UK economy, hit the economy the hardest with a cut of 15.14% to the economy. This was followed by production, Construction and Agriculture amongst others. Production plunged by 15.5% in the period led by decline in four sub-subsectors whereas the growth in Construction sector was negative 29.8% in May 2020 as a result of record fall in related sectors, mainly private new housing and private commercial, which fell by 42.5% and 29.5% respectively. The graph below clearly illustrates the impact the economy had due to lockdown in major sectors.



If we look at the other economic indicators for UK, its manufacturing PMI (Purchasing Manager’s Index) for the month ended April 2020 contracted to record low of 32.6 indicating the deteriorated economic conditions as envisaged by the decline in manufacturing growth which had itself fallen by more than 18% during the three-month ended May 2020. Output, new orders and export view continued to shrink drastically with the pace of job shedding recorded as the second highest decline during the period.



However, the PMI rose to 40.6 in May 2020 and further to 50.1 indicating the gradual stabilisation of the manufacturing segment, things are yet to show sustained and extended optimism before guiding any firm recuperation in the overall activity. The statistics revealed by the Office for National Statistics, UK showed that number of people on payroll fell by 2.1% or 612,000 between March and May and the unemployment rate is rising faster than that observed during the great economic depression of 1930’s and is expected to reach 3 million by summer. The slowdown in the economic activity can also be ascertained through the ease in CPI which fell to 1.5% in March 2020, from 1.7% in February 2020. In April the CPI stood at 0.8% YoY and further declined to 0.5% in May 2020 as the pandemic hit demand for goods and articles across the board. Even the PPI (Producer price Index) fell 1.4% YoY in May 2020, recording its largest fall since December 2015. Petroleum contributed the largest downfall of -26.8%, driven by diesel and oil gas. The downward trend for the fall in the factory gate price started from the end of March 2020, as the lockdown imposed certain restrictions on the movements and led to closure of factories and other economic activity.



Positively, the UK manufacturing sector has showed further signs of recovery in June and has started to stabilise after the recent downturn caused by the Covid-19 pandemic. PMI rose to 50.1 in June, up from 40.7 in May 2020 showing optimism and stabilisation in the economic conditions, though the reading still just hovers above the neutral 50.0 mark. After contracting by more than 19% in the rolling three months ended May 2020, the GDP of the country has just managed to move towards the positive territory, though overall growth remains below expectations. Service sector which accounts for 80% of the UK’s economy output, also depicted signs of improvements, with PMI for services rising from 29 to 47 as wholesale, retail, transportation and hospitality sectors showed signs of improvements from the record level fall in last three months.


The ongoing pandemic has left no economy unaffected due to the requirement for factory closure, service abandonment and other economic related activities emanating from social distancing and other lockdown norms. The greatest challenge post pandemic and after the lockdown measures are eased, would be the pace at which the countries normalise their economic activities and get the wheels of growth trajectory rolling once again. Although the road to recovery is going to be rather difficult, the country that would strive to overcome this depressing economic phase as soon as possible would ultimately find its way through to growth.


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