U.K. Hit By Worst Economic Contraction On Record Amid Covid-19 Pandemic
Topline
Britain’s economy shrank by a record-breaking 9.9% in 2020, new figures by the Office of National Statistics show, highlighting the impact of Covid-19 restrictions, employment uncertainty and reduced demand, with limited growth in the final quarter narrowly avoiding a double-dip recession.
The U.K. economy shrank by a record amount during 2020 due to the effects of the coronavirus … [+]
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Key Facts
The Office for National Statistics said Friday that the U.K.’s economic output fell by 9.9% in 2020, the largest annual fall on record.
Though the economy grew 1% in the last quarter when looser restrictions boosted the services industry, overall output was down 7.8% from the last quarter of 2019, the ONS said.
The slump is twice that of the 2009 financial crisis and is possibly the worst in 300 years, with models from the Bank of England suggesting a decline of 13% during the Great Frost of 1709.
U.K. finance minister Rishi Sunak said the figures show that the U.K. has suffered a “serious shock” as a result of the Covid-19 pandemic.
“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,” Sunak said, adding that his focus “remains fixed on doing everything we can to protect jobs, businesses and livelihoods.”
Key Background
The pandemic and associated public health restrictions made for an economically bumpy 2020, especially in economies like the U.K. which are heavily reliant on services. In the U.K., the first and second quarters of 2020 shrunk the economy by 2.9% and 19% respectively, but there was record growth of 16.1% in the third as restrictions were lifted.
Tangent
In contrast, the U.S. economy shrank by a record 3.5% in 2020, the worst year since the aftermath of World War 2.
What To Watch For
Strict public health measures and a resurgent wave of Covid-19 infections driven by a dangerous new variant of the virus have the U.K. economy likely falling again in 2021. While the U.K. has the worst coronavirus death rate in the world, it also has one of the best vaccination records, priming the country for an economic comeback. The BBC reported Bank of England Chief Economist Andy Haldane describing the economy as a “coiled spring” ready to release large amounts of “pent-up financial energy”.
Further Reading
GDP first quarterly estimate, UK: October to December 2020 (ONS)
UK economy suffered record annual slump in 2020 (BBC)
UK economy shrinks by most in 300 years (Financial Times)
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