It may be months before official figures reveal the extent of decline – so analysts are using proxy data to measure it

Britain’s economy contracted in February, sending the first signals of a downturn that is expected to quickly turn into a slump. According to last week’s official figures, the UK’s national income, or gross domestic product (GDP), fell by 0.1%.

Even though the Covid-19 virus had yet to take hold in the UK and the government lockdown was several weeks away, the economy was hit during the month by heavy rainfall, which closed building sites and discouraged consumers from venturing out.

For the past three years, the economy has stayed afloat thanks to buoyant consumer spending and, latterly, the recruitment of civil servants to help the government prepare for Brexit, offsetting the problems of a manufacturing industry that spent much of 2019 in recession. But GDP, which crept up during the first half of 2019, finished the year with a final quarter of zero growth.

It will be several months before official figures begin to capture the collapse in economic activity experienced since February, which has encouraged City investment banks and thinktanks to look at detailed data to build a picture of the downturn as it progresses.

Jobs

Universal credit applications have rocketed since the lockdown. Figures from the Department for Work and Pensions show 500,000 people applied for universal credit, the government’s main welfare benefit, in the last two weeks of March. This was followed by an additional 250,000 in the first week of April.

The DWP has refused to give updates since then, but the chancellor, Rishi Sunak, said the increase slowed last week.

It is not difficult to see why universal credit claims have spiralled. The latest data from the Office for National Statistics shows that almost 30% of businesses are furloughing workers in the short term.

Businesses in the IT and information services sector are better off: so far only 10% of workers have been laid off. But more than half of businesses in the accommodation and food services sector have shed workers.

The Resolution Foundation thinktank believes the trend for further universal credit claims – often held in a queue by the slow pace of processing at DWP call centres – will continue for some time.

One measure to give an indication of the trend was the decline in the number of job vacancies, which only two years ago reached a record high. Another was the number of online searches for information on how to claim benefits, it said.

“The frequency of web searches for unemployment-related terms has fallen further this week and [they] are now less than half of the levels seen in the middle of March,” the foundation said. “But even though web searches have fallen, they are still around levels that were seen at the peak of the financial crisis in 2009.”

The knock-on effect to the economy is likely to be dramatic, the thinktank believes. “A 30% fall in employment – consistent with a number of published surveys – suggests GDP could end up contracting by as much as 5% in the first quarter, with much worse to follow in the second quarter. Such sharp contractions in activity would be unprecedented.”

The FTSE

By the end of March, the FTSE 100 had recorded its biggest quarterly fall for more than three decades, such was the financial panic caused by the coronavirus. Investors feared the costs of coping with a global pandemic would continue to mount as more people died and governments kept their economies in lockdown.

The leading index of UK company shares plunged by 25% in the three months to the end of March, a slump in share values not seen since the aftermath of Black Monday in October 1987.

This month the index has staged a recovery, along with stock markets in all the major financial centres, in response to figures showing the worst-hit countries – Italy and Spain – are reaching the peak of new cases. On 23 March, the FTSE index slipped below 5,000 points to 4,993. Last Friday it had recovered almost 1000 points to 5,842.

As a proxy for the nation’s wealth, the FTSE is not always reliable, given its large number of overseas-based companies, but with most British workers’ pensions invested in shares, the recent turmoil has come as a shock to many. Analysts expect the volatility seen over the last month to continue as governments search for ways to ease restrictions on business.

Transport journeys

The number of people taking bus and train journeys has collapsed to little more than 20% of its normal level for the time of year.

A study by the investment bank Jefferies and the public transport app Moovit found that daily usage of mass transit across the UK, weighted by population, hit 22% on 1 April. This figure is likely to have declined further as the government discourages workers from using buses and trains in major cities, which initially continued to see large numbers of people travelling in rush-hour periods.

Transport for London has reported that it will lose £500m in revenue from a clampdown that it hopes will drive passenger numbers on the tube network below 5% over the Easter weekend. Car use has also declined, though many key workers have preferred to drive to work over the last month, viewing it as a quicker and safer form of transport.

Energy consumption

Businesses are huge consumers of energy. The shutdown of large parts of the manufacturing sector and the vast number of offices left empty has brought down electricity consumption to 85% of normal levels. The consumption of gas has held up, due to its use for domestic heating. The recent warm weather has resulted in a seasonal drop in demand, but this drop has been offset by the millions of people staying at home to work.

Analysts at Cornwall Insight said manufacturers were quick to scale down energy consumption in February as the spread of the virus in China hit imports and restricted domestic production. The clampdown on non-essential work meant most factories closed or switched to making products needed during the pandemic.

The almost total shutdown of restaurants, bars, pubs and leisure facilities has hugely affected energy consumption in that sector.

Not surprisingly, wholesale energy prices have tumbled as demand has dropped. This situation was made worse by a row between Saudi Arabia and Russia over supplies that has led to international markets being flooded with oil, despite a tentative deal on Friday to limit production.