UK economy ‘set for less severe first quarter hit’ thanks to March rebound

Lockdown restrictions are expected to have sent the UK economy into reverse at the start of 2021, but official figures on Wednesday are set to show a smaller hit than first feared.

Experts predict that a resilient performance in March will have helped limit the overall impact in the first quarter as the economy becomes more adept at weathering Covid lockdowns.

The latest data from the Office for National Statistics (ONS) is expected to reveal that gross domestic product (GDP) – a measure of the size of the economy – grew by 1.4% month-on-month in March despite restrictions remaining firmly in place.

The Bank of England last week forecast that first quarter GDP would fall by 1.5% – far less than the 4% plunge it had warned over at the start of the lockdown.

It also hiked its growth outlook for the full year to 7.25% – which would be the best year of growth since the Second World War – as the UK stages a vaccine-fuelled recovery.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, believes March GDP data will show an even stronger rebound, with an increase of 1.8% thanks to the reopening of schools on March 8.

He said: “We expect the March GDP report, released on Wednesday, to show that the economic recovery gathered renewed momentum even before
restrictions on business activity had been lifted.”

He is predicting the bounce back to pick up pace throughout the second quarter as restrictions ease, with GDP rising by 5% between April and June.

He added: “Near real-time data indicate the reopening on April 12 has gone well.

“At the same time, Covid-19 cases have continued to fall, and the Government remains on track to meet its target of offering a first vaccine dose to all adults by the end of July, despite recommending that under-40s do not receive the AstraZeneca shot.”

The economy has been proving surprisingly resilient since the eye-watering impact of the initial lockdown.

GDP fell by 2.2% in January, but rose by 0.4% in February as the construction and manufacturing sectors helped soften the blow.

The National Institute of Economic and Social Research (Niesr) also upped its 2021 growth forecast, to 5.7%, on Monday as it said the “immediate economic effects of the virus… are expected to wane”.

But it cautioned over the long-term scarring from the pandemic, which sent GDP tumbling nearly 10% in 2020 – the worst performance for more than 300 years.

Niesr said: “The poor Covid-19 performance has greater permanent cost for the UK compared with other major economies.

“The size of the economic contraction means that the level of GDP is nearly 4% in 2025 than we had forecast it to be before the Covid-19 pandemic, equivalent to around £1,350 per person per year (2018 prices) falling further behind the US and Germany as a result.”