UK GDP contracts 2.9% in January

The UK’s GDP fell by 2.9% in January as lockdown restrictions continued to reduce economic activity, new figures published by the Office for National Statistics (ONS) have revealed.

This followed the growth of 1.2% that the ONS reported for December 2020.

GDP also contracted by 1.7% in the three months to January, which the ONS revealed was down from a 1.0% growth in the three months to December.

The output approach to GDP shows that January’s level was 9.0% below that seen in February 2020 and was 4.0% below levels seen in October 2020, the initial recovery peak. Overall, all main sectors of GDP remained notably below their pre-pandemic levels that were reported in February 2020, and all were lower than in October 2020.

Kingswood chief investment officer, Rupert Thompson, commented: “The lockdown took a smaller toll on the UK economy in January than expected with GDP falling 2.9% over the month rather than 4.9% as had been expected.

“While this still leaves the economy set to see a sizeable contraction over the first quarter as a whole, the rapid vaccine rollout holds out the prospect of a sharp rebound from the second quarter.”

Director of Conister, which is part of AIM listed Manx Financial Group, Douglas Grant, added that businesses will still be encouraged by the continued support on offer from the government, and the Chancellor’s introduction of a new loans scheme offering £25,000 to £10m loans for businesses of any size.

“While a drop in output is usually a sign of a struggling economy, we are, by this point, all too aware of the effect national lockdowns have on output and production,” Grant added.

“The economy has been like a coiled spring as lenders flush with liquidity in a low-yield environment prepare for the potential of negative interest rates and look to deploy capital to support resilient business sectors.

“Lenders and agile, resilient companies alike have been awaiting a directive on which sectors remain a government priority and the introduction of a new ‘restart grant’ recovery loan scheme will provide the necessary catalyst many sectors need to living off an ever-increasing debt pile.

“The Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme played instrumental roles in keeping many resilient SMEs alive and acted as important triage systems to identify and support viable businesses that needed credit, and we are pleased to see the Government look beyond this triage phase and instead identify, prioritise and protect our most resilient individual business sectors and segments.”

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