UK GDP contracts by record 9.9% in 2020

The UK’s GDP contracted by 9.9% in 2020, the largest annual fall in the country’s GDP on record, new data published by the Office for National Statistics (ONS) has revealed.

Latest figures showed that GDP was estimated to have grown by 1.0% in the fourth quarter, following a revised growth of 16.1% in Q3. However, despite two consecutive quarters of growth in the second half of the year, GDP in the UK remains 7.8% below its Q4 2019 level.

The figures were driven by the contraction of 19.0% to the UK GDP that was felt in Q2, when the UK first went into lockdown.

Hargreaves Lansdown senior investment and markets analyst, Susannah Streeter, suggested that while the UK may have “swerved a technical double dip recession”, the record annual fall in economic output underlines the damage of the pandemic on businesses up and down the country.

“The economy is almost 10% smaller than it was before the pandemic hit,” Streeter said. “There is still a mountain to climb in this recovery and there will be a lot more pain to come given the current nationwide shutdowns.

“With no road map yet laid out to the reopening of the economy, it’s hard to see the light at the end of the tunnel when the tunnel keeps getting longer.

“The Bank of England’s chief economist Andy Haldane has been doing his best to drum up confidence. The forecast that the economy will bounce back like a coiled spring as people spend the savings they have amassed during lockdown will depend on just how easy it will be to splash that cash.

“Vaccine rolls outs are certainly helping spread optimism, but confidence is unlikely to start rebounding until consumers feel free to shop, dine out, visit bars and go on holiday once more.”

In the final quarter of 2020, the ONS recorded increases in services, production and construction output, although the output of these industries remained below their Q4 2019 levels, before the impact of coronavirus hit the UK economy.

On a monthly basis, the latest figures showed that GDP increased by 1.2% in December, as lockdown restrictions were eased early in the month in several parts of the UK.

Conister director, Douglas Grant, added: “Rises in GDP over a quarter are usually a sign of a healthy, strengthening and growing economy. Unfortunately this nominal climb in output, while better than expected, does not reflect the dire situation that many businesses are facing.

“Earlier this week the Resolution Foundation warned that the UK government has risked creating a legion of zombie companies and we must avoid amplifying this status of many of the UK’s SMEs, living off an ever-increasing debt pile, at all costs.

“While, 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, we must now accept that we have passed this triage phase and instead it is imperative that we identify, prioritise and protect our most resilient individual business sectors and segments.”

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