The UK economy grew more than expected in the fourth quarter despite extensive Covid-19 restrictions, but it remained smaller than it was before the pandemic and the outlook for the start of 2021 has darkened.
Output expanded 1 per cent in the three months to December from the previous quarter, according to data from the Office for National Statistics — a stronger showing than the 0.5 per cent forecast by economists polled by Reuters.
But the figures released on Friday showed UK output was down 7.8 per cent from the final quarter of 2019, twice the decline in Germany and three times the drop in the US. The differences reflect long periods of tough restrictions in the UK as well as generous US stimulus plans and tax cuts in Germany.
In 2020 as a whole, UK output fell 9.9 per cent, the fastest drop in 300 years and more than twice the drop during the financial crisis, laying bare the full scale of the pandemic’s impact.
Rishi Sunak, chancellor of the exchequer, said: “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.”
“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,” he added.
The Bank of England expects the economy to contract sharply in the first quarter because of the latest national lockdown. But the UK has been relatively swift with its vaccine campaign, raising hopes of an economic recovery from the spring.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “We look for a hefty 6 per cent quarter-on-quarter rebound in GDP in the second quarter, followed by a 2.2 per cent increase in the third.” That could mean a faster recovery than in other European countries, where the vaccine rollout has been much slower, he added.
In December, the economy expanded 1.2 per cent compared with the previous month, reflecting a partial reopening after the lockdown in November.
“Loosening of restrictions in many parts of the UK saw elements of the economy recover some lost ground in December,” said Jonathan Athow, deputy national statistician for economic statistics, “with hospitality, car sales and hairdressers all seeing growth.”
An increase in Covid-19 testing and tracing also boosted output, he added.
The services sector staged the strongest rebound, rising 1.7 per cent in December compared with the previous month as the reopening of client-facing services such as non-essential stores, bars and restaurants boosted sales.
Growth in manufacturing was slower than in the services sector but followed seven months of uninterrupted expansion. In contrast, output in the construction sector fell for the first time since the spring.