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The UK’s economy shrunk at its fastest rate since the 1920s last year, as the pandemic forced thousands of businesses to remain closed for several months.

The Office for National Statistics (ONS) revealed that gross domestic product (GDP) dropped by 9.9{9fdcce03dc006ba6aefbae291db7d19e2674997f46d46055bf64c42b760b042b}.

However, after registering a 1.2{9fdcce03dc006ba6aefbae291db7d19e2674997f46d46055bf64c42b760b042b} growth in December – despite strong restrictions across large parts of the country – the economy looks set to avoid what could have been its first double-dip recession since the 1970s.

All four sectors tracked by the ONS saw a drop in output, with the highest drop coming in the construction sector, which contracted by 12.5{9fdcce03dc006ba6aefbae291db7d19e2674997f46d46055bf64c42b760b042b}.

ONS deputy national statistician for economic statistics Jonathan Athow said: “Loosening of restrictions in many parts of the UK saw elements of the economy recover some lost ground in December, with hospitality, car sales and hairdressers all seeing growth.

“The economy continued to grow in the fourth quarter as a whole, despite the additional restrictions in November.”

The economy was helped in December by an easing of lockdown restrictions that had been in place in parts of the country in November. It was also aided by increased buying in the run-up to Christmas, and stockpiling ahead of the end of the Brexit transition period.

The health sector grew by 2.4{9fdcce03dc006ba6aefbae291db7d19e2674997f46d46055bf64c42b760b042b} after being involved with running coronavirus testing and tracing schemes across the UK.

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Chancellor Rishi Sunak said the figures revealed the “serious shock” the pandemic has had on the economy.

“At the Budget I will set out the next stage of our plan for jobs, and the support we’ll provide through the next phase of pandemic,” he added.

The 9.9{9fdcce03dc006ba6aefbae291db7d19e2674997f46d46055bf64c42b760b042b} fall marks the worst year for the UK economy since records began.

GDP was first measured in the aftermath of the Second World War, and the measure has never previously dropped by more than 4.1{9fdcce03dc006ba6aefbae291db7d19e2674997f46d46055bf64c42b760b042b}.

That last big drop was in 2009, but the Bank of England has also estimated historic GDP going back centuries. These measures come with caveats, but if correct, 2020 would be the worst year since 1921.

Suren Thiru, the head of economics at the British Chambers of Commerce, said: “Despite avoiding a double-dip recession, with output still well below pre-pandemic levels amid confirmation that 2020 was a historically bleak year for the UK economy, there is little to cheer in the latest data.”

Separately, the Bank of England’s chief economist has said the UK economy is “poised like a coiled spring” to leave lockdown and predicted that annual growth could be in double digits next year.

As European Commission officials expressed cautious optimism that economies on the continent will rebound later this year and in 2022, Andy Haldane wrote in the Daily Mail that Britain will bounce back due to lockdown savings.

Many UK households have significantly improved their finances after being forced by the pandemic to stay at home, with the household saving ratio soaring to an all-time high of 29.1{9fdcce03dc006ba6aefbae291db7d19e2674997f46d46055bf64c42b760b042b} in the second quarter of last year, according to the ONS.

Haldane said if recent trends continue, the savings “nest-egg” will be more than £250bn by July.

Last week, the Bank of England estimated that around 5{9fdcce03dc006ba6aefbae291db7d19e2674997f46d46055bf64c42b760b042b} of that would leak into the economy, but Haldane said he believes the figure will be much higher.

“While today the economy is shrinking and inflation is well below target, a year from now annual growth could be in double digits and inflation back on target,” he said.

“The economy is poised like a coiled spring – as its energies are released, the recovery should be one to remember after a year to forget.”

Haldane said in November that developments in vaccines for Covid-19 meant the 2021 outlook for the UK economy was “materially brighter”.



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Post Author: EDONS