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Financial News: UK Economy Contracts Most On Record In 2020

UK Economy Contracts Most On Record In 2020

02/12/2021 - 06:01:00 (RTTNews)

(RTTNews) - Amid tight restrictions imposed to control the coronavirus pandemic, the UK economy contracted at a record pace in 2020, although the output grew at a faster-than-expected pace in the fourth quarter, avoiding a risk of another recession.

Gross domestic product logged a decline of 9.9 percent in 2020 with all four sub-sectors posting annual declines, the Office for National Statistics reported Friday. The economy had expanded 1.4 percent in 2019.

In the fourth quarter, GDP grew 1.0 percent, following a revised 16.1 percent growth in the third quarter. Economists had forecast a quarterly growth of 0.5 percent.

The rise in GDP in the fourth quarter despite the lockdown is further evidence that the economy has built up some immunity to lockdowns, Thomas Pugh, an economist at Capital Economics, said.

Even though the third Covid-19 lockdown means that the economy will almost certainly take another step down in January, a technical double-dip recession has now been avoided, the economist added.

James Smith, an ING economist said, the current rules are succeeding in driving hospitalisations lower, and the rapid vaccine rollout raises the chances of a decent 4-5 percent second-quarter bounce, which makes negative interest rates look increasingly unlikely.

Despite two consecutive quarters of growth, the level of GDP in the UK was still 6.6 percent below where it was in the fourth quarter, prior to the pandemic, the ONS said.

In 2020, the construction sector posted the biggest fall of 12.5 percent. Services and production decreased 8.9 percent and 8.6 percent, respectively. Farm output was down 9.4 percent.

In the fourth quarter, the slowdown was largely driven by the services sector. Due to the higher restrictions on activity in place, services output gained only 0.6 percent.

Production rose 1.8 percent and manufacturing output expanded 3.3 percent in the fourth quarter. Construction output grew 4.6 percent and farm output was up 0.7 percent.

On the expenditure-side, household consumption dropped 0.2 percent as there was lower spending in restaurants and hotels. Driven by healthcare expenditure, government consumption advanced 6.4 percent.

Gross fixed capital formation grew 2.1 percent, reflecting a large increase in transport equipment. Business investment increased 1.3 percent in the fourth quarter and it was 10.3 percent below where it was at the end of 2019.

In the fourth quarter, the UK posted a trade deficit of 3.2 percent of nominal GDP.

In December, GDP grew by 1.2 percent after falling by revised 2.3 percent in November, when there were more extensive restrictions to activity.

The services sector acted as the main contribution to growth in December, increasing by 1.7 percent as a number of consuming facing industries reopened following the easing of restrictions in December.

In December, the visible trade deficit narrowed to GBP 14.3 billion from GBP 14.79 billion in November, the ONS said in a separate communique. Exports grew 1.5 percent, while imports fell 0.2 percent.

The overall trade deficit, including goods and services, narrowed to GBP 6.2 billion from GBP 6.6 billion a month ago.

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