0725 GMT February 25, 2021
If 1709 was the year of the Great Frost then economic historians will remember 2020 as the year of the Great Pandemic. Everything that has happened to output has been related to COVID-19.
Overall, the economy as measured by gross domestic product fell by 9.9% from its 2019 level, making it the biggest fall since modern records began. At least for now, because 1921 runs 2020 reasonably close as an economic horror show, and at this stage the Office for National Statistics (ONS) is only giving its first growth estimates.
Upward revisions are possible when more data comes in, but according to the Bank of England nothing like 2020 has been seen since Queen Anne was on the throne in the early 18th century.
In the here and now, the UK received a modest – if temporary boost – as the four-week lockdown imposed in England in November was relaxed. The service sector businesses that had been most severely affected by restrictions, such as pubs and restaurants, saw activity rise early in the month before being forced to shut again as December drew to a close.
Growth in both December and the fourth quarter of 2020 was marginally stronger than economists had expected, and there were a number of reasons for that. Restrictions were not as draconian as they had been in the spring, businesses learned how to adapt, there was a boost to the output of the health sector from the ramping up of the COVID test and trace program, and there was some stockpiling by manufacturers before the end-of-year Brexit deadline.
The fact that the economy expanded by 1.0% in the period between October and December means that the UK has avoided a double-dip recession – two separate periods in which GDP contracts for at least two quarters.
But even if this is not a double-dip recession it is going to feel like one, because the sharp slowdown in activity between the third and fourth quarters of 2020 will be followed by a big slump in output in the first three months of 2021. The fresh downturn could easily lead output to fall by a further 4%.
[Chancellor of the Exchequer] Rishi Sunak’s response to the latest ONS figures was telling. There were rumors coming out of the Treasury a few months ago that the chancellor would start withdrawing support for the economy in the 3 March budget in order to start repairing the damage caused to the public finances.
That idea has been overtaken by events. Sunak said the budget would be used to set out how the government would support jobs and the economy through the next phase of the pandemic.
The message from the latest ONS data is that the economy could rebound quickly once restrictions on activity are lifted. The message from the chancellor is that it may take some time before that happens.
Source: The Guardian