LONDON (Reuters) – The British economy shrank less than feared in January, when the country stopped the coronavirus again, but trade with the European Union was hampered by the start of new post-Brexit rules.
Gross domestic product was 2.9% lower than in December, said the Office of National Statistics.
Economists polled by Reuters had expected a 4.9% contraction and government bond prices fell, as investors took the data as a sign that the Bank of England was less likely to inject more stimulus into the economy.
Britain suffered its worst economic crisis in three centuries last year, when it shrank 10%. It was also hit by the highest COVID-19 death toll in Europe, with more than 125,000 people.
But the country is accelerating with vaccines and, after Friday’s figures, economists said they expected the economy to shrink by 2% in the first quarter of 2021, half of the hit predicted by the BoE just last month.
Many companies are learning to deal with the blockages, including retailers that have increased their online shopping operations and service companies that are trying to help workers do their jobs at home.
Samuel Tombs, with Pantheon Macroeconomics, predicted a recovery of 5% growth in the second quarter “which would end the chances of the Monetary Policy Committee reducing the Bank Rate this year”.
BoE looks set to keep its stimulus programs on hold next Thursday.
The ONS figures also showed that Britain’s exports and imports to the EU had the biggest drop ever recorded, although there was a delay in collecting some data and there were signs of recovery in late January.
Exports of goods to the EU, excluding non-monetary gold and other precious metals, fell by 40.7%. Imports fell by 28.8%.
Many companies have anticipated imports to avoid border disruption from January 1 onwards, and global trade flows have been hit by the coronavirus pandemic.
SERVICES HIT
The overall GDP figures were hit hard by the impact of the rules of social distance on Britain’s huge service sector.
“The economy suffered a notable blow in January, although less than some expected, with retailers, restaurants, schools and hairdressers affected by the latest blockade,” said Jonathan Athow, a statistician at ONS.
Manufacturing fell for the first time since April, with car production dropping dramatically.
But ING economist James Smith pointed to the increase in GDP in Britain’s COVID-19 health policy response: “What really stands out is healthcare spending, where the increased testing and tracking scheme government and vaccine programs added 0.9% to GDP figures alone. “
The economy remained 9% lower than in February last year, before the pandemic.
Prime Minister Boris Johnson plans to ease restrictions on England’s coronavirus gradually, before suspending most of them in late June.
Growth in the coming months is also expected to be driven by finance minister Rishi Sunak’s announcement last week that he will inject another 65 billion pounds ($ 90.6 billion) into the economy, including an extension of his license scheme. for job protection.
ONS reported that service production shrank 3.5% in January from December. The Reuters survey pointed to a 5.4% contraction.
Reporting by William Schomberg; Editing by Alistair Smout, Philippa Fletcher and John Stonestreet