UK economy’s collapse in 2020 was worst since 1709

UK Economy

The coronavirus pandemic’s economic collapse in the UK is severe, worst in three centuries. The economy contracted by 9.9 percent in 2020, initial estimates from the Office for National Statistics showed on February 12, 2021.

A study of historical data by the Bank of England shows that recession to be the worst since 1709, the year known as the Great Frost, an extraordinarily cold winter in Europe, what was then a largely agricultural economy.

Even with nearly 300 billion pounds, or about $415 billion, in stimulus for businesses, jobs and public services including the National Health Service, the restrictions introduced to contain the pandemic shrunk the economy back down to its size in 2013.

The UK’s service sector, which makes up four-fifths of the country’s economy, declined by 8.9 percent. But the pain has been uneven: Restaurants, hotels, theaters and other leisure services have been particularly pummeled, while professional, financial and health services were not as badly hurt. A recent survey suggests that about half of hospitality businesses have less than three months of cash reserves.

The UK manufacturing sector fell 8.6% and construction 12.5%.

The economic cost reflects the broader devastation of the pandemic. There have been more than 115,000 Covid-related deaths in Britain, which has the harrowing distinction of recording the most deaths in Europe. Britain has reported Europe’s highest death toll from Covid-19 and is among the world’s highest in terms of deaths per person.

But the outlook is improving, both for public health and for the economy. The country looks set to avoid a double-dip recession, which would have resulted from two consecutive quarters of negative growth following the downturn in the spring of 2020.

Despite the discovery of a more contagious variant of the coronavirus in the UK, the economy grew at the end of the year because more businesses were able to adapt to restrictions, schools remained open and contact tracing and widespread testing added to economic activity. Warehousing and transportation also added to growth as consumers spent more online during the holiday period and businesses stockpiled ahead of the end of the Brexit transition period.

The economy is expected to contract again in the first few months of 2021 because most of Britain is under a strict lockdown and trade has been disrupted by Brexit, but the rapid rollout of vaccines has bolstered expectations for an upbeat recovery later in the year. Tough restrictions also remain in place in Northern Ireland, Scotland and Wales.

The Bank of England expects the economy to return to its pre-pandemic size by early 2022 as consumers spend the savings they accumulated while services, such as restaurants, hairdressers and hotels, have been closed.

Official figures showed GDP grew 1.0 percent from October through December, the top of a range of economists’ forecasts in a Reuters poll. The GDP figures show the breadth of the pandemic’s economic impact in Britain.

“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.

“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,” the UK’s top treasury official, Chancellor Rishi Sunak, said in a statement. “While there are some positive signs of the economy’s resilience over the winter, we know that the current lockdown continues to have a significant impact on many people and businesses.”

Sunak said he would announce new plans to protect jobs and bolster the economy when he delivers his annual budget statement to the House of Commons on March 3.

COVID-19 has hit UK’s economy harder than most other industrialized democracies. French GDP shrank 8.3% last year, Germany 5% and the U.S. 3.5%.

In hopes of relaxing the restrictions that have devastated the economy, the UK has moved to rapidly vaccinate its most vulnerable residents. More than 13.5 million people, or about 20% of the population, had received at least one dose of COVID-19 vaccine by Wednesday.

Andy Haldane, chief economist for the Bank of England, said the vaccination drive is helping the UK turn a corner in its battle against the virus. Lifting COVID-19 restrictions is likely to unleash a wave of spending by consumers and businesses that will trigger a rapid recovery later this year, he said.

“A decisive corner is about to be turned for the economy, too, with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring,” Haldane wrote in the Daily Mail.

“These figures confirm that not only has the UK had the worst death toll in Europe, we’re experiencing the worst economic crisis of any major economy,” said Anneliese Dodds, the opposition Labour Party’s spokesperson on economic issues. “Businesses can’t wait any longer. The Chancellor needs to come forward now with a plan to secure the economy in the months ahead, with support going hand-in-hand with health restrictions.”



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