(Bloomberg) — The U.K. economy grew at double the pace expected in the fourth quarter, capping a year that delivered the worst slump since 1709.
Gross domestic product rose 1% from the third quarter, fueled by a boom in construction and government spending. That averted the risk of a second recession early this year but left a 9.9% contraction for the whole of 2020, the biggest slump since a Great Frost killed crops across Europe.
The figures add weight to the Bank of England’s view that growth is set to surge as Prime Minister Boris Johnson’s campaign to vaccinate the population takes hold. The central bank’s Chief Economist Andy Haldane expects consumers to unleash an estimated 250 billion pounds ($345 billion) of savings that households built up while the economy was locked down.
“A year from now, annual growth could be in the double digits,” Haldane wrote Friday in the Daily Mail newspaper.
GDP in the fourth quarter was 7.8% lower than a year earlier, further below pre-pandemic levels than any other Group of Seven economy.
Output grew 1.2% in December alone, recouping some of the loss from the previous month when England was placed in a four-week lockdown. That suggests Britons are adapting to restrictions better than they did last spring, when the economy lost around a fifth of its value.
Health care and education spending was responsible for much of the increase from the public sector. All the main segments of the economy in the fourth quarter, with construction posting the strongest reading. Companies also increased their stockpiles of goods before the U.K.’s Brexit transition period ended on Dec. 31.
The outlook for the recovery hinges on the degree of scarring left by the pandemic. Few expect GDP to return to its pre-crisis path anytime soon, suggesting Britain will have to live with higher levels of unemployment and government borrowing for years to come.
A double-dip recession would have been inevitable if the economy shrank in the fourth quarter. With the country now back under even harsher restrictions, the Bank of England expects a sharp contraction this quarter. Johnson is under pressure to ease restrictions on the economy starting March 8.
The hope is for a swift recovery once the vaccine makes it safe to reopen schools and businesses. The pound was little changed after the report. trading down 0.1% at $1.3797 as of 7:14 a.m. London time.
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