UK economy shrank 1.5% under winter lockdown but rebounded in March

The UK economy shrank by 1.5 per cent in the first quarter of 2021, after the country was pushed into a third Covid lockdown in January.

School closures and a large fall in retail sales earlier in the quarter dragged down economic growth, said the Office for National Statistics. The economy is now 8.7 per cent smaller than where it was before the pandemic.

However, the results were better than expected. Economists polled by Reuters had expected GDP to shrink by 1.7% under the UK’s stringent lockdown restrictions.

The figures also show a strong recovery in March, with the economy growing 2.1 per cent because of a boost in retail spending and the return of schools.

The service sector grew by 1.9% in March, as retail sales continued to strengthen, even before non-essential shops reopened in April. The production sector, which includes utilities, mining and manufacturing expanded by 1.8%, with manufacturing output rising for a second month, by 2.1 per cent.

With lockdown measures now being phased out, the country is expected to see a sharp rebound for the remainder of the year.

Chancellor Rishi Sunak said: “Despite a difficult start to this year, economic growth in March is a promising sign of things to come.” He added: “As we cautiously reopen the economy, I will continue to take all the steps necessary to support our recovery”.

The International Monetary Fund expects UK GDP to grow 5.3 per cent in 2021, partially recovering from last year when the economy recorded its largest annual contraction since 1709.

Alpesh Paleja, lead economist at the business group CBI, said: “While latest data confirms the economy was hit once again by a renewed lockdown at the turn of the year, the fall in activity was much smaller compared with spring 2020. Households and businesses have clearly adapted better to working and living under Covid restrictions, despite the brutal cost of doing so.”

He said a range of indicators “point to a rebound in activity heading into summer” but said that the recovery would be felt more by some. “Undoubtedly, hardest-hit sectors and households have a longer road ahead,” he said.