The UK economy has shrunk more in the past year than any in the G-7, in what the Bank of England says will be the country’s biggest economic downturn in more than 300 years.
What went wrong? The outages have caused the United Kingdom more suffering than other members of the Group of Seven advanced economies, in part because it is especially dependent on consumer spending, which has evaporated amid one of the most deadly Covid-19 outbreaks in Europe. The economy was already weak after four years of negotiations on Britain’s withdrawal from the European Union, during which business investment declined and households contained spending.
This is the starting point for Britain’s new relationship with the EU, which started on January 1 with a flexible free trade agreement. Earlier this month, Prime Minister Boris Johnson announced another national blockade to combat a new, more contagious variant of the coronavirus. This puts the UK economy on a course to shrink again in the first quarter of the year, when companies are also expected to become familiar with new European trade deals.
Growth in the UK was already weak when it entered the pandemic due to weak business investment, low productivity and low income growth. After the coronavirus installed itself, the British economy shrank more than its peers in the G-7 in the first nine months of the year. The figures for the last quarter, due on February 12, should show a further contraction of the economy.
The UK had a greater loss because about 13% of its annual gross domestic product comes from spending on recreation and culture and on restaurants and hotels, a larger share than any other G-7 country. Businesses that depend on direct contact with consumers – bars and restaurants, sporting events, hotels and theaters, cinemas and museums – were hampered when social distance became the norm and when the spread of the virus forced them to close. The current blockade, which runs until mid-February, closes schools and non-essential stores, and people were told to leave the house only if necessary.