(Bloomberg) — The U.K. economy grew at double the pace expected in the fourth quarter, showing signs of resilience to coronavirus restrictions at the end of a year that delivered the worst recession since 1709.
Figures published Friday add some weight to the Bank of England’s view that while the economy will likely shrink in the first three months of the year, a successful vaccine rollout and a surge in household savings during lockdowns could power a sharp recovery in 2021.
Gross domestic product grew 1% in from October through December, fueled by a boom in construction and government spending. Output contracted 9.9% for the whole of 2020, slightly below the latest estimates of the U.K.’s fiscal watchdog.
The outlook hinges on the degree of scarring left by the pandemic and how soon can the government can capitalize on one of the world’s fastest vaccination campaigns to loosen restrictions. Chancellor of the Exchequer Rishi Sunak said the economy displayed “resilience” over the winter but insisted it was right to “proceed cautiously” on ending the lockdown.
The government will set out “the support we’ll provide through the next phase of pandemic” in the March 3 budget, he said.
“What is clear from the data is the resilience and adaptability of firms and households,” said Dean Turner, an economist at UBS Global Wealth Management. “As and when restrictions are eased, we continue to expect a vigorous rebound in the economy.”
The pound was little changed after the report, trading down 0.2% at $1.3793 as of 8:07 a.m. London time. Government bonds were also little changed.
BOE Chief Economist Andy Haldane said the central bank’s expects consumers to unleash an estimated 250 billion pounds ($345 billion) of savings that households built up while the economy was locked down.
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“A year from now, annual growth could be in the double digits,” Haldane wrote Friday in the Daily Mail newspaper before the latest GDP figures were released.
What Bloomberg Economics Says
“We still expect the U.K.’s fast vaccine rollout program to engender a sharp rebound as restrictions are eased from the spring.”
— Dan Hanson, senior U.K. economist. Click here for full REACT.
GDP in the fourth quarter was still 7.8% lower than a year earlier, further below pre-pandemic levels than any other Group of Seven economy. A gauge of real-time data compiled by Bloomberg Economics suggests activity picked up or held steady in major economies in the first half of February. That suggests more strength than in mid-January when the reading dropped with stronger Covid-19 restrictions.
Few expect output 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. The economy expanded 1.2% in December alone, recouping some of the loss from the previous month when England was placed in a four-week lockdown.
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.
(Updates with comment from Bloomberg Economics.)
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