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UK Economy Shrinks In Q1

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The UK economy contracted in the first quarter as school closures and a large fall in retail sales earlier in the quarter dragged down growth, the Office for National Statistics reported Wednesday.

Gross domestic product shrank 1.5 percent sequentially, reversing a 1.3 percent rise in the fourth quarter. Economists had forecast a sequential drop of 1.6 percent. The economy contracted again in the first quarter after rising for two straight quarters.

On a yearly basis, GDP dropped 6.1 percent, as expected in the first quarter.

The level of GDP was 8.7 percent below where it was before the pandemic at the fourth quarter of 2019, ONS said.

However, the reopening of sectors in the coming months should trigger rises in GDP of at least 3.0-3.5 percent quarter-on-quarter in the second and third quarters, Ruth Gregory, an economist at Capital Economics, said.

That would take the economy back to its February level before the end of the year, the economist added. If anything, these figures suggest that the economy could regain its pre-crisis level even sooner.

Services and production output contracted 2 percent and 0.4 percent, respectively in the first quarter, while construction expanded 2.6 percent.

In March, GDP grew 2.1 percent, the fastest monthly growth since August 2020, as schools in some parts of the UK reopened throughout the month. GDP was up by revised 0.7 percent in February.

The service sector grew 1.9 percent from February. Output in the production sector climbed 1.8 percent, as manufacturing grew for a second consecutive month, at 2.1 percent.

At the same time, the construction sector expanded 5.8 percent in March, driven by growth in both new work and repair and maintenance.

Another data showed that the visible trade gap widened to GBP 11.7 billion from GBP 10.5 billion in February.

The surplus on services came in at GBP 9.74 billion. Consequently, the total trade deficit rose to GBP 1.96 billion from GBP 856 million a month ago.

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