Chancellor of the Exchequer, Rishi Sunak, says:
“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.
“That’s why my focus remains fixed on doing everything we can to protect jobs, businesses and livelihoods.
“At the Budget I will set out the next stage of our Plan for Jobs, and the support we’ll provide through the next phase of pandemic.”
This chart shows how the UK economy performed last year:
GDP shrank by 2.9% in Q1, followed by a record-breaking 19% slump in Q2 – due to the first national lockdown. The economy then posted 16% growth in Q3, before the second wave of Covid-19 led to fresh restrictions – slowing the recovery to 1% in Q4.
The resulting 9.9% slump leaves the economy back at levels seen during 2013.
Here are the main points from today’s UK GDP report:
- UK gross domestic product (GDP) in Quarter 4 (Oct to Dec) 2020 is estimated to have grown by 1.0%, following revised 16.1% growth in Quarter 3. Despite two consecutive quarters of growth, the level of GDP in the UK is 7.8% below its Quarter 4 2019 level.
- Over the year 2020 as a whole, GDP contracted by 9.9%, marking the largest annual fall in UK GDP on record.
- In Quarter 4 2020, there have been increases in services, production and construction output, although the output of these industries remained below their Quarter 4 2019 (pre-pandemic) levels.
- There has been a further recovery in government consumption and, to a lesser extent, business investment in Quarter 4 2020 reflecting the easing of public health restrictions, however, the levels remain below their pre-lockdown level.
The UK has suffered its worst annual slump on record, with the economy contracting almost 10% last year amid the pandemic.
The Office for National Statistics reports that over the year 2020 as a whole, GDP contracted by 9.9%, “marking the largest annual fall in UK GDP on record”.
That is slightly worst than the deep recession in 1921, when GDP fall by 9.7% amid coal strikes, soaring unemployment and depression following the first world war.
It is only beaten by the annus horribilis of 1709, when the Great Frost froze the country, driving GDP down by an estimated 13% — well before we had proper economic statistics.
The UK has avoided a double-dip recession.
GDP expanded by 1% in the final three months of 2020, the ONS reports — better than the 0.5% growth which economists expected.
The GDP data is out…. and it shows that the UK economy grew by 1.2% in December.
That’s a little stronger than forecast, showing that activity picked up after the second national lockdown, in November, ended.
The Office for National Statistics says:
GDP increased by 1.2% in December 2020 as restrictions were eased early in the month in many parts of the UK.
The largest contributor to this increase was accommodation and food service activities and other services, as the easing of restrictions across many parts of the UK in early December boosted demand for these consumer facing services. Health also contributed positively to growth in December 2020, as a result of increased activity, mainly due to the coronavirus testing and tracing schemes across the UK.
The Bank of England’s chief economist has predicted that the UK economy will come roaring back this year, as lockdown measures are eased.
Andy Haldane argues that people will embark on a spending spree — visiting pubs, cinemas and restaurants more often, and splashing out on a new TV, car or house.
By June, Haldane estimates, households could have built up £250bn of savings, which could catalyse a recovery later this year.
Writing in the Daily Mail, he says:
“So come the Spring, we can expect the UK economy to be firing on all three cylinders – households, companies and government.
While today the economy is shrinking and inflation is well below target, a year from now annual growth could be in double-digits and inflation back on target.
The economy is poised like a coiled spring. As its energies are released, the recovery should be one to remember after a year to forget.”
Today we discover how the UK economy fared in December, and learn just how much economic damage was caused by the pandemic last year.
The latest GDP data, due at 7am, are expected to show that the economy grew by 1% in December, with the reopening of shops after the November lockdown providing a pre-Christmas lift.
That would mean growth during the last quarter of the year of around 0.5%, economists predict, as the economy contracted in November.
That’s a sharp slowdown on the record growth of around 16% seen in Q3, but would still mean the UK avoided sliding towards a double-dip recession (although the economy is probably shrinking in the current quarter).
David Madden of CMC Markets says:
The preliminary reading of fourth quarter GDP will be published at 7am (UK time), economists are expecting to see 0.5% on a quarterly basis, which would be a big fall from the 16% growth registered in the third quarter.
Services account for approximately 70% of the UK’s economic output. The services PMI levels in October, November and December were 51.4, 47.6 and 49.4 respectively. A reading below 50.0 means negative growth. It is clear the tougher restrictions that were introduced from November onwards dented the all-important industry. Given the uncertainty that existed in relation to the UK-EU trading relationship at the back end of 2020, there could have been stockpiling of goods.
Today’s report will also confirm that the UK has suffered one of its worst economic slumps ever last year.
- 7am GMT: UK GDP report for December, and Q4 2020
- 7am GMT: UK trade balance for December
- 3pm GMT: University of Michigan survey of US consumer sentiment