This means that the Covid-19 pandemic has effectively wiped out all UK growth in the past 7 years, bringing the economy back to the size of 2013.
The 9.9% drop in UK GDP was less severe than expected, but still overcame the 9.7% collapse experienced during the Great Depression in 1921, making it the worst annual drop since 1709, according to with a Bank of England database. That was when Europe’s toughest winter in 500 years caused widespread death and destruction.
“This time, the blame is on a pandemic, whereas at that time it was a Great Frost, which saw ice in the North Sea, and the Spanish War of Succession … which was causing the damage,” wrote the strategist Societe Generale Kit Juckes in a research note on Friday.
There were some signs of improvement in the last months of 2020, with GDP estimated to have increased by 1% in the fourth quarter, after record growth in the third, according to the National Statistics Office.
But there were big fluctuations in production between October and December, broadly tracking the level of restrictions imposed to contain the coronavirus.
The UK suffered one of the worst recessions between major economies in the past year. Germany, for example, resisted the pandemic better than during the global financial crisis. Provisional estimates suggest that Europe’s largest economy contracted 5% last year. The EU’s GDP, in turn, should have shrunk 6.4%, according to Eurostat.
The United States performed even better in comparison, with GDP decreasing 3.5% from the previous year.
“Today’s figures show that the economy has undergone a serious shock as a result of the pandemic, which has been felt by countries around the world,” UK Finance Minister Rishi Sunak said in a statement. “While there are some positive signs of resilience in the economy during the winter, we know that the current blockade continues to have a significant impact on many people and businesses.”
The new national blockade in the UK, imposed on January 5, is expected to hit the economy strongly in the first quarter of 2021, reversing the resumption of growth in the fourth quarter of 2020.
“It looks like a double dip [recession] it was merely postponed rather than avoided, “said Sam Miley, an economist at the London-based Center for Economic and Business Research, in a note on Friday.
The interruption of EU-UK trade after the end of the Brexit transition period on December 31 is also weighing on activity.
British exporters have been struggling to take their products to Europe due to border delays and failures in new customs systems. In some cases, companies that sell fresh produce, such as live seafood and meat, have had to discard their produce. Even after the dust settles, new trade deals are expected to add additional costs to UK companies, which depend on Europe for much of their imports and exports.
The pandemic has left more than a quarter of British adults financially vulnerable, with too many debts or insufficient savings to cope with a “negative life event” such as redundancy, lost hours or health problems, according to research published in Thursday by the Financial Conduct Authority (FCA).
The survey also found that nearly 40% of British adults suffered financially as a result of the pandemic, with younger, black and self-employed workers among those hardest hit.
But half of the adults in the FCA survey said the pandemic did not affect their finances, while about 15% of adults were better off. This could lay the groundwork for increased demand driven by savings, according to Bank of England chief economist Andy Haldane, who pointed to high savings rates among UK households in an opinion article published in the Daily Mail on Thursday.
“The rapid deployment of the vaccination program across the UK means that a decisive curve has been turned in the battle against Covid,” he said. “A decisive curve is also to be turned towards the economy, with huge amounts of pent-up financial energy waiting to be released, like a spiral spring,” he added.
– Will Godley contributed to this article.
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