In 2019, UK GDP rose by 1.4%, slightly above the 1.3% growth rate recorded in 2018, but still one of the weakest annual growth rates since the financial crisis. Sluggish economic growth in 2019 was largely due to ongoing uncertainties surrounding Brexit, reduced business spending and slowing global economic growth.

According to latest ONS estimates, the UK economy shrank by 2% in Q1 2020, the fastest decline since the 2008 global financial crisis. This comes after the economy stagnated in the final quarter of 2019.

The first quarter drop was driven by a record fall in March output, as COVID-19 forced the country into lockdown from 23^rd March 2020. GDP fell by 5.8% in March 2020, with the economy set to suffer a more substantial decline in Q2. The chancellor Rishi Sunak said it is "very likely" the UK is in a "significant recession".

The British Chambers of Commerce (BCC) quarterly economic survey for Q1 2020 found that while investment and confidence began to gradually improve in the first quarter, shorter term indicators around cash flow showed prolonged underlying weakness, even before the full impacts of the COVID-19 crisis became clear.

According to BoE’s latest ‘Agents’ summary of business conditions’ for Q1 2020, investment intentions had improved slightly at the start of 2020, as companies reported that uncertainty had declined somewhat following the general election. But, during March 2020, COVID-19 developments have led to the outlook becoming highly uncertain. This has resulted in some companies halting investment plans and retaining cash buffers, in particular in retail, leisure, travel and hospitality.

The ONS runs a new voluntary fortnightly business survey, which captures businesses' responses on how their turnover, workforce prices, trade and business resilience have been affected COVID-19. The results of the latest survey, which covers the period 20^th April to ^3rd May 2020, were released on 21^st May 2020.

According to the survey, 20% of businesses who responded had temporarily closed or paused trading during the two-week period, while 79% reported continuing to trade during this period. 

61% of all businesses continuing to trade reported their turnover had decreased between 20^th April and 3^rd May 2020, while 31% reported that their financial performance had not been affected and just 4% said their turnover had increased.

In 2018, the energy supply sector directly contributed £28 billion to the UK economy, up by 7.2% on the previous year and reversing the decline recorded in the previous two years. The economic impact of the UK water supply and sewerage sector was £14.57 billion in 2018, down by 2.5% on the previous year.

With less industrial activity, the closure of schools and commercial establishments and more people working at home, the UK has seen lower than usual demand for electricity. While household electricity consumption has increased as a result of lockdown, any growth in domestic demand would be far outweighed by the reduction in demand from businesses and industry. Electricity demand will be further impacted over the coming weeks and months by the crisis.

The COVID-19 lockdown will see household expenditure on energy increase in 2020. While energy consumption is up, wholesale energy prices have collapsed amid the COVID-19 pandemic. This is pushing down the cost of new deals which means households are able to make greater savings by switching to a cheaper tariff, which would help to partly offset the rise in energy bills due to increased consumption.

COVID-19 has created the biggest economic uncertainty in decades. The Bank of England has released an illustrative economic scenario, which, while highly conditional, helps to illustrate the potential impact of COVID19 on the economy. The scenario assumes no second wave of infections after the easing of lockdown measures over a four-month period from early June 2020.

The scenario indicates that the UK economy could shrink by 14% in 2020, marking the deepest recession for more than 300 years. The Bank of England expects the fall in GDP to be temporary and activity should pick up relatively rapidly as social distancing measures are relaxed.

The Bank said GDP growth could hit 15% for 2021 as a whole, with GDP recovering its pre-COVID peak by the second half of next year.

However, Chancellor Rishi Sunak informed a House of Lords committee on 19^th May 2020 that it is “not obvious there will be an immediate bounceback” of the UK economy and that it may take time for it to recover to levels seen prior to the COVID-19 pandemic.

The BoE’s illustrative scenario suggests that the UK’s unemployment rate will reach 8% by the end of the year, easing slightly to 7% by the end of 2021. The level of unemployment will clearly impact the speed at which consumer spending can return once the economy emerges from the lockdown and will impact households’ ability to afford utility bills.