The U.K. economy grew 7.5 percent in the last quarter of 2021 from a year earlier, the fastest growth since 1941.
The U.K. economy grew at its fastest pace since World War II last year after a softer-than-expected hit in December.
The 7.5 percent growth was the fastest since 1941 and made Britain the fastest growing advanced economy in 2021. Still, the economy remained smaller in the fourth quarter than it was in late 2019, before the pandemic hit.
The figures will be welcomed by Prime Minister Boris Johnson, who is grappling with a brutal cost-of-living crisis and faces calls to resign over alleged rule-breaking parties when the country was in lockdown. They will also force the Bank of England to focus on efforts to rein in rising inflation, with further interest rate hikes likely in the coming months
After a deeper recession due to the pandemic than its main competitors, shrinking 9.4% in 2020, the U.K. has experienced a stronger recovery, aided by billions of pounds of government aid to support jobs and companies during the crisis. The economy is projected to outperform the other G7 countries again this year.
Thanks to “our support package and the right decisions at the right time, the economy has proven remarkably resilient,” said Chancellor of the Exchequer Rishi Sunak.
Nevertheless, Britain has yet to return to its pre-pandemic levels of output on a quarterly basis, which has already been surpassed by the U.S. and France. On a month-to-month basis, GDP in December remained at February 2020 levels.
Gross domestic product fell 0.2% in December as the spread of the omicron option kept consumers at home. But the decline was less than the 0.5% that economists had forecast, resulting in growth for 2021 as a whole above the 7.3% projected by the Bank of England. The services sector has declined less than expected since November, while manufacturing and construction rose.
What Bloomberg Economics says…
“The U.K. economy showed more resilience in the face of an Omicron version of Covid-19 in December than we expected. Today’s data also suggest that it will perform slightly better in the first quarter than the Bank of England forecast, leaving the door open for a rate hike in March.”
- Dan Hanson, Bloomberg Economics. Click here for REACT.
The overall decline was due entirely to a 0.5 percent decline in the service sector, where hospitality venues suffered massive cancellations in the run-up to Christmas and retailers saw footfall fall after the government imposed restrictions to curb the spread of Omicron. .
Businesses in the economy were also hampered by massive absences related to the virus and continued disruptions in the supply chain. On the positive side, health care services increased due to the rollout of repeat vaccinations.
A drop in manufacturing in December limited fourth-quarter growth to just 1%, leaving GDP 0.4% below its end-2019 level. With Omicron restrictions extending into the new year, January is also expected to be weak.
Yael Selfin, chief economist at KPMG UK, said declining personal income due to higher prices and planned tax increases could lead to “disappointing economic activity in the coming months.” She predicts GDP growth of 3.7 percent this year.
“The reality is that the way the government is managing our economy is trapping us in high taxes and a low growth cycle,” said Pat McFadden, a Treasury spokesman for the opposition Labor Party. “The Bank of England’s latest forecast suggests that growth will slow to a minimum next year. It will be the slowest growth of any of the G7 economies.”
The Bank of England’s forecasts, released Feb. 3, show that the economy stagnated in the first quarter but recovered strongly in the next three months, returning to its pre-recession size. The Bank had raised rates in the previous two meetings, bringing the benchmark rate to 0.5%, and this year the markets are pricing in a series of quick follow-throughs.
The goods trade deficit, excluding precious metals, narrowed slightly in the fourth quarter, with exports growing slightly faster than imports. Imports from non-EU countries remained higher than those from the European Union for the 12th consecutive month in December.