UK economy shrinks record 9.9 per cent in 2020 as Covid-19 wave dampens recovery
The slump is bigger than the Great Depression of 1929
By Karl McDonaldFebruary 12, 2021 8:02 amUpdated February 12, 2021 8:28 am
The slump is the largest in history, according to a new report released by the Office for National Statistics, outstripping the 9.7 per cent fall in 1929, the year of the Great Depression.
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The Great Frost of 1709 is estimated by some to have caused an even greater hit to the economy, but the meteorological phenomenon occurred before modern, comprehensive data was being collated.
The news was not all bad, however, as the final quarter of 2020 actually saw growth of 1 per cent, leading the UK to avoid “double dip” recession.
The service sector powered growth in the run up to Christmas, with looser restrictions on hospitality playing a part.
But the prospect of a V-shaped recovery is fading. The third quarter of 2020 also saw revised GDP growth of 16.1 per cent – but the country is still down year on year, and entered 2021 under harsh pandemic restrictions.
The next Budget is due to take place on 3 March, with the Chancellor addressing further pandemic support measures – and potentially moving forward with new tax rises to cover some of the coronavirus-era spending increases.
“Today’s figures show that the economy has experienced a serious shock as a result of the pandemic, which has been felt by countries around the world,” he said in a statement this morning.
“While there are some positive signs of the economy’s resilience over the winter, we know that the current lockdown continues to have a significant impact on many people and businesses.
“That’s why my focus remains fixed on doing everything we can to protect jobs, businesses and livelihoods.
“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.”
Little to cheer
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.”
All four sectors tracked by the ONS saw a drop in output over the year., the statisticians said, with the highest drop coming in the construction sector, which contracted by 12.5 per cent.
December’s 1 per cent growth came in a context of loosened restrictions, but by the end of December, they had tightened again, with the increasingly widespread Kent strain taking hold across the country, and the UK remains in lockdown in mid-February.
Economic growth for Q1 2021 may look grim as a result, but the positive vaccine rollout news could break the cycle of slump and recovery.
Kemar Whyte, senior economist at the independent National Institute of Economic and Social Research, said: “With Covid-19 restrictions expected to remain elevated until early spring, we anticipate a sharp decline in activity during the first quarter of the year. Nevertheless, growth will pick up from the second quarter onwards as restrictions ease on the back of a successful vaccination programme.”
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