UK suffers worst annual economic slump since the Great Frost of 1709, a 9.9% decline

A man wearing a mask as a preventive measure against the spread of Covid-19 walks in London.

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LONDON — The U.K. economy contracted by 9.9% in 2020, its largest annual contraction since the Great Frost of 1709, as the coronavirus pandemic ravaged economic activity.

In the final quarter of the year, gross domestic product grew by 1%, according to the Office for National Statistics, as the country reimposed nationwide lockdown measures in a bid to combat a resurgence of Covid cases.

The 9.9% annual contraction is more than twice that seen in 2009 in the aftermath of the global financial crisis, and narrowly worse than the 9.7% slump during the crisis of 1921.

Economists polled by Refinitiv had expected an 8% annual decline in 2020, with a fourth-quarter expansion of 0.5%. This follows a revised 16.1% rebound in the third quarter as social, travel and business restrictions were eased.

As of Friday morning, the U.K. has recorded more than 4 million cases of Covid and 115,000 deaths, according to data compiled by Johns Hopkins University. The U.K. has been blighted by new and more transmissible variants of the virus in recent months.

Hitesh Patel, portfolio manager at Quilter Investors, said the U.K. had experienced an “annus horribilis” in the form of the “trifecta” of a public health crisis, economic shutdowns and uncertainty surrounding Brexit.

“However, 2020 is in the past and the U.K. arguably has a promising second half of the year ahead given the success of the vaccine rollout,” he added.

“This could easily be derailed should one of the mutations prevent the vaccines properly taking effect, but for now a double-dip recession has been avoided, and soon lockdowns may potentially be the thing of the past.”

England remains in a nationwide lockdown with no clear end date, although British Prime Minister Boris Johnson confirmed on Wednesday that around 1in 4 adults — 13 million people — have received the first dose of a Covid vaccine.

Monthly GDP in December increased by 1.2% from the previous the month but remained 6.3% below the level of February 2020. Fourth-quarter GDP remained 6.6% below the level a year earlier.

The services sector grew by 1.7% in December after contracting by 3.1% in November, while manufacturing posted its eighth consecutive month of growth, the ONS said, albeit its smallest increase since May 2020.

“The tighter restrictions imposed towards the end of last year, which are likely to remain in place for much of the current quarter, suggest that the economy may shrink again,” said Dean Turner, economist at UBS Global Wealth Management.

“However, what is clear from the data is the resilience and adaptability of firms and households, so any contraction will be modest. As and when restrictions are eased, we continue to expect a vigorous rebound in the economy.”

The Great Frost was an extraordinarily cold winter that caused rivers and canals to freeze over for several months in Britain and much of northern and central Europe, claiming a substantial number of lives and bringing economies to a standstill.

Source: CNBC