UK economy slumps by record 10% in 2020 after COVID hit
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[February 12, 2021] By
David Milliken and William Schomberg
LONDON (Reuters) - Britain's coronavirus-ravaged economy suffered its
biggest crash in output in more than 300 years in 2020 when it slumped
by 9.9%, but it avoided heading back towards recession at the end of the
year and looks on course for a recovery in 2021.
Official figures showed gross domestic product (GDP) grew 1.0% from
October through December, the top of a range of economists' forecasts in
a Reuters poll.
This makes it likely that Britain will escape two straight quarters of
contraction - the standard definition of recession in Europe - even
though the economy is set to shrink in early 2021 due to the effects of
a third COVID lockdown.
"As and when restrictions are eased, we continue to expect a vigorous
rebound in the economy," said Dean Turner, an economist at UBS Global
Wealth Management.
Britain's economy grew 1.2% in December alone, after a 2.3% fall in
output in November when there was a partial lockdown, pointing to
greater resilience to COVID restrictions than at the start of the
pandemic.
That left output 6.3% lower than in February before the start of the
pandemic, the Office for National Statistics said.
However, the Bank of England forecasts the economy will shrink by 4% in
the first three months of 2021 because of the new lockdown and Brexit
disruption.
It thinks it will take until early 2022 before GDP regains its pre-COVID
size, assuming vaccination continues at the current rapid pace, which
outstrips the rest of Europe's. Many economists think recovery will take
longer.
"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," finance minister Rishi Sunak said.
Sunak, facing the heaviest borrowing since World War Two, said he would
continue to focus on protecting jobs when he sets out a new annual
budget on March 3.
Unemployment has risen much less than feared at the start of the crisis,
largely due to subsidies to keep people in work, though sectors such as
hospitality and high-street retail remain hard hit.
HARDER HIT THAN MOST
Last year's fall in output was the biggest since modern official records
began after World War Two. Longer-running historical data hosted by the
Bank of England suggest it was the biggest drop since 1709, when Britain
suffered a "Great Frost".
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A person crosses an almost empty New Bond Street, as official
figures are published for UK GDP in 2020, London, Britain, February
12, 2021. REUTERS/Toby Melville
Britain has reported Europe's highest death toll from COVID-19 and is among the
world's highest in terms of deaths per head.
The GDP fall is steeper than almost any other big economy's, though Spain - also
hard-hit by the virus - suffered an 11% decline.
Some of the damage reflects how Britain's economy relies more on face-to-face
consumer services than other countries, as well as disruption to schooling and
routine healthcare, which few other countries factored in to GDP.
Sunak, in an interview with Sky News, said Britain's economic performance could
be seen as being marginally above that of some of its peers last year.
GDP is almost always compared on a "real" or inflation-adjusted basis, which
shows Britain was the worst performer in the Group of Seven large advanced
economies. But Sunak said Britain did better on a "nominal" basis, which ignores
inflation.
Taking this approach, Britain's economy is closer to its pre-crisis size than
Germany, France or Italy's, according to figures provided by the ONS, which said
it "may be useful" to look at nominal as well as real measures of GDP.
But most international differences on inflation adjustment centre on government
spending, and looking at household spending alone, Britain remains a laggard.
Household spending in the fourth quarter was 8.4% below pre-crisis levels,
compared with a 2.6% shortfall in the United States and 6.8% in France.
"The UK's underperformance can't simply be attributed to the different way the
ONS measures government expenditure to most other countries," said Samuel Tombs
of Pantheon Macroeconomics.
(Writing by David Milliken; editing by Willian Schomberg, Guy Faulconbridge,
Raissa Kasolowsky, Larry King)
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