ONS Reports 2% Fall In Q1 GDP As 1.2 Million Take Card, Loan Payment Breaks

New figures from the Office for National Statistics (ONS) confirm that the UK economy is suffering a dramatic contraction as a result of coronavirus (COVID-19).

The ONS estimates UK gross domestic product (GDP) fell by 2% in the first quarter of 2020, following a flat fourth quarter of 2019.

It says: “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 pandemic.

“The decline in the first quarter largely reflects the 5.8% fall in output in March 2020 (when lockdown restrictions were imposed), 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.”

Impact on business sectors

Figures released earlier this month show how different sectors of the economy were faring under the coronavirus lockdown, which has now been partially lifted in England.

The ONS surveys UK businesses every two weeks to monitor how their turnover, trading and business resilience has been affected by the health crisis.

The numbers follow the release of forecasts by the Bank of England which suggest the unemployment rate in the UK could double to almost 10% as the economy reels from the impact of the pandemic.

Mixed picture

The ONS survey data, relating to the period 6 April to 19 April, presents a mixed picture.

Of the 6,114 businesses that responded, 77% said they were continuing to trade, but 81% of firms in accommodation and food service and 80% of those in the arts, entertainment and recreation sector said they were temporarily closing or pausing trading.

Of the 4,690 businesses continuing to trade, 58% said their turnover had decreased, with just 30% reporting that their financial performance had not been affected.

The ONS also found that 19% of the employees of those businesses that are continuing to trade had been furloughed during the period in question.

Furloughed employees receive 80% of their salary from the government (up to a maximum of £2,500 a month) under its coronavirus job retention scheme.

Card and loan payment holidays

UK Finance, which represents financial institutions, says almost 700,000 credit card and 470,000 personal loan customers have asked for three-month payment holidays because of the impact of the lockdown on their cashflow.

Lenders have agreed not to report these customers to credit reference agencies as being in arrears, meaning a payment holiday will have no adverse effect on an individual’s credit file.

However, customers are being told to agree their payment holiday in advance and not simply stop making payments, as this could have a negative impact on their credit history.

Anyone considering a payment break should also remember that interest will continue to be charged during the holiday and will be added to the outstanding debt.

Citizens Advice warns of ‘cliff edge’ for debts

Commenting on the fact that almost 1.2 million people have opted to suspend debt payments, Dame Gillian Guy, chief executive of Citizens Advice, said: “The payment holidays provided by lenders have helped soften the financial shock of the coronavirus lockdown for hundreds of thousands of people.

“However, there’ll be many households needing further help, and more time, to get their finances in order.  

“Renters and council tax payers who are falling behind on payments face a cliff edge when a temporary pause on payment enforcement comes to an end. 

“The government needs to take action to make sure people don’t face eviction or harsh debt collection for falling behind on bills due to coronavirus.”

Surge in fire insurance claims

In other coronavirus news, insurer Admiral has said that the number of garden fire claims it has received since the end of March has doubled compared with last year and is three times higher than the same period in 2018.

The firm – which grabbed headlines in April by announcing a £25 rebate to all its car insurance policyholders because of reduced usage during the lockdown – says barbecues and garden waste bonfires are the main reasons for the increase.

David Fowkes at Admiral said: “With the good weather we’ve had in recent weeks, there’s been an increase in the number of barbecue-related incidents.

“Even more concerning is the rise in claims relating to bonfires where they haven’t been controlled, extinguished properly or were started too close to buildings or fences.

“We think this is down to people being tempted to burn their garden waste or rubbish because some council waste collections have been disrupted and many tips are closed.

“It’s all too easy for the wrong items (such as paint or plastic) to end up on a bonfire, which can cause plumes of acrid smoke or toxic chemicals to be released, and even cause explosions.”

Fowkes says people should think twice before lighting a fire: “The last thing anyone wants to do is put unnecessary pressure on our emergency services right now.”