Graeme Wearden 

UK suffers record 9.9% slump; KPMG UK chair quits after ‘stop moaning’ comments –as it happened

UK GDP shrank by 9.9% last year amid Covid-19 lockdowns, the worst since modern records began, and only beaten by the Great Frost of 1709
  
  

A window display on Oxford Street in central London in December.
A window display on Oxford Street in central London in December. Photograph: Tolga Akmen/AFP/Getty Images

Closing post

Right, that’s all for this week - after a day in which the UK posted its worst annual slump in three centuries, but avoided sinking back into a double-dip recession.

Here are today’s main stories:

Meanwhile in the markets, the FTSE 100 is ending the week with a decent rally - now up 50 points or 0.8% at 6579. The pound’s approaching a new 33-month high too, trading at $1.385 vs the US dollar.

Have a lovely weekend! GW

Rishi Sunak has chaired a meeting of finance ministers and central bank chiefs today, to discuss how to steer the world economy out of the coronavirus crisis.

In a statement, the Treasury says:

Chancellor Rishi Sunak set out his priorities for the year ahead which also include protecting jobs and supporting the global economic recovery, working to reach a global solution to the tax challenges created by digitalisation of the economy and providing necessary support for the world’s most vulnerable countries.

Sunak chaired the call because the UK is hosting this year’s G7 meeting.

He’s also pushing for a joint approach to taxing internet giants by the middle of the year (an area where Europe clashed with the US under Donald Trump’s presidency).

The Treasury explains:

Making progress on reaching an international solution to the tax challenges of the digital economy was noted as a key priority. The UK underlined our commitment to this issue, and called on the G7 to work together towards reaching an enduring multilateral solution by the mid-2021 deadline agreed by the G20.

Despite Rishi Sunak’s best efforts to point us towards nominal GDP, investors continue to conclude that the UK has performed worse than international peers.

Here’s Rathbones’ head of asset allocation research, Ed Smith, who also points out that the economy only grew last quarter because of government spending:

It only confirms what we already knew: that, on the first GDP estimates at least, the UK had the second worst economic outcome in 2020 out of the 42 countries we keep an eye on. Only Spain contracted by more.

The UK has also had the second worst health outcome, quantified by COVID deaths per capita. Together, this suggests the risks of long-term economic scarring are larger in the UK than many of its peers. Key sectors were already ailing before the pandemic, and there’s evidence to suggest the UK may have a greater share of so-called “zombie” companies (unprofitable enterprises propped up by extremely cheap financing). The private sector is more indebted than many countries too, which increases fragility and limits the bounce-back.

UK firms’ employment intentions are notably weaker than average according to international surveys. And a Europe-wide survey of unemployment expectations shows UK households are more fearful, which correlates with a lower propensity to spend. While surveys of other countries’ business investment intentions improved in the third quarter, in the UK they remain stuck at the lowest level since the survey began in 1997 – substantially worse than during the financial crisis even.

UK saw mild growth of 1% in the final quarter of 2020, although the Q4 GDP report indicated that exporters were suffering by more than expected – and that’s before Brexit. Consumption fell due to restrictions, and business investment also continues to be weak.

Were it not for 6.4% quarter-on-quarter growth in government consumption, the economy would have actually contracted. The Chancellor would do well to remember that in March.

Back in the City, the FTSE 100 is pushing higher as the end of the week approaches.

The blue-chip index is now up 39 points, or 0.6%, at 6568.

The rally comes after new figures shows that the reproduction number, or R value, of coronavirus transmission across the UK is between 0.7 and 0.9, according to the latest government figures.

It is the first time the R value has fallen below 1 for the since July last year.

American consumer confidence has taken a dip, highlighting the weak state of the US economy as the Covid-19 pandemic continues to rage.

The University of Michigan’s consumer sentiment index has fallen to 76.2 this month, down from 79 in January, and weaker than the 80.8 which analysts expected.

The sub-index of consumer expectations was notably weak (dropping to 69.8 from 74), indicating more nervousness about economic prospects.

The US stock market has opened cautiously, with investors keeping to the sidelines after driving stocks to record levels this week.

The Dow Jones industrial average has dipped by 44 points, or 0.14%, to 31,386, while the tech-focused Nasdaq is pretty much flat at 14,012.

The ONS also flags up that the 1% growth in October-December was mainly driven by increases in the health and education industries.

Health experienced an increase of 12.4%, mainly because of the coronavirus testing and tracing schemes across the UK. Meanwhile, education increased by 5.6%, reflecting higher levels of school attendance in Quarter 4

Today’s GDP report also shows that UK business investment is around 10.3% below its level at the end of 2019, despite growing by 1.4% in the last quarter.

That indicates that (unsurprisingly) firms are focused on day-to-day survival rather than sinking capital into longer-term projects.

The ONS says:

The latest Bank of England Decision Maker Panel reports that economic uncertainty remained high or very high for 68% of businesses, and “remains much higher than 41% at the start of 2020, while investment remained 20% lower that would otherwise have been because of Covid-19.”

Three UK firms have told us about the pressures they’ve faced amid tougher restrictions at the start of this year, highlighting the need for more government support until the crisis over:

Here’s Anneliese Dodds MP, Labour’s Shadow Chancellor, on the news that the UK economy shrank by a record 9.9% last year:

“These figures confirm that not only has the UK had the worst death toll in Europe, we’ve experiencing the worst economic crisis of any major economy.

“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.

“We need a smarter furlough scheme that offers certainty beyond April, alongside an extension to the business rates holiday and the vital VAT reduction for hospitality and tourism to give businesses breathing space.

“This crisis has pulled back the curtain on the Conservatives’ insecure economy. We need to rebuild stronger, putting in place the foundations for a better, more secure future.”

Updated

The pound has taken the GDP report in its stride too.

It’s currently trading around $1.38, not too far from the 33-month high ($1.386) hit this week.

Analysts at FX Pro say there are some positive signs in the growth report, alongside the annual slump in GDP.

The economy was adding in December despite record COVID-19 numbers. A separate report showed a 1.7% m/m growth in the service sector, the most vulnerable part of the economy during a lockdown.

The massive vaccine roll-out in January and the continued vaccination rate offers hope for an accelerated economic recovery.

Economist Julian Jessop predicts a rapid pick-up in growth later this year:

Markets shrug off GDP blues, but fret about Covid-19

The London stock market wasn’t rocked by the news that the UK suffered its worst slump in three centuries last year.

The FTSE 100 index of leading blue-chip shares is up a modest 9 points, or 0.15%, at 6538, although travel companies and some UK-focused firms have dropped.

Investors are watching the latest developments in the pandemic, with Germany closing its border to parts of Austria and the Czech republic following a troubling surge in infections of more contagious coronavirus variant.

And in Australia, Melbourne is going into a five-day snap lockdown, or “circuit-breaker”, to stem the spread of a new outbreak.

Shares in IAG, the airline group, are down 1.8% so far today, with budget airline easyJet down 3.2%, cruise operator Carnival off 3.8%, and holiday operator TUI shedding 3.6%.

Russ Mould, investment director at AJ Bell, says:

“New figures from the ONS showed the extend of the damage on the UK economy in 2020 from coronavirus, causing many UK-focused companies to fall on the market on Friday despite these figures being backwards-looking. Retailer Next fell 1.6%, banking group Natwest retreated 1.4% and trainers-to-tracksuits seller JD Sports dipped 1.2%.

“The UK economy shrank by 9.9% in 2020 but there was an improvement at the end of the year. The economy grew by a better than expected 1.2% in December, after shrinking by 2.3% in November, as some restrictions eased. The new lockdown that started at the end of December and is still ongoing will no doubt have caused the economy to wobble again.

“However, many households will have saved a significant amount of money during the past year and so there could be a big spending spree when restrictions are eventually lifted.

Economists: UK shrinking this quarter, after 2020 slump

Charles Hepworth, Investment Director at GAM Investments, cautions that the UK economy may not ‘roaring back’ for a few months.

He also flags up that Brexit trade tensions also hit the economy at the end of last year:

The UK economy recorded a 1% advance in the fourth quarter of 2020 - better than expectations of 0.5% growth but don’t get the celebrations started just yet. As a whole the UK economy collapsed by close to 10% over the course of 2020 which is among the worst of all G7 nations, reflective of the ravaging effects of lockdowns and the obvious trade tensions in the run up to the Brexit deadline last year.

It must come as some relief that the quarterly print was not negative as inevitably this current quarter will likely be, as that would have resulted in a double dip recession. We will need to see an end to lockdowns and restrictions before growth begins its natural ascendency.

Thankfully as the impressive pace of vaccine rollout in the UK takes hold, it has to be the more likely outlook that growth will come roaring back, but a note of caution that that, in our view, is still one to two quarters away.

Sam Miley, Economist at the CEBR, also predicts a sharp downturn this quarter:

“Looking ahead, it seems that a double dip was merely delayed rather than avoided outright, with the ongoing restriction measures placing a firm dent in the UK’s path to recovery.

The latest Cebr forecasts point to a 3.5% output fall in Q1 2021. Though this pales in comparison to the 19.0% contraction witnessed in Q2 2020, this would still amount to the second largest quarterly contraction since official records began, thus highlighting the potentially devastating economic impact of the third lockdown.”

Dr Kemar Whyte, senior economist at NIESR, predicts an even deeper slump - at around 3.8% in the first three months of 2021:

“According to today’s ONS figures, UK GDP contracted by 9.9 per cent in 2020, which is likely to be the largest annual fall among G7 countries last year. Economic growth slowed significantly, dropping from 16.1 per cent in the third quarter to 1 per cent in the last quarter of the year.

As a result, the level of GDP in the fourth quarter remained about 8 per cent below pre-pandemic levels even before a third lockdown became necessary in January 2021.

With Covid-19 restrictions expected to remain elevated until early spring, we anticipate a sharp decline in activity during the first quarter of the year. Nevertheless, growth will pick up from the second quarter onwards as restrictions ease on the back of a successful vaccination programme.”

Lastminute.com has been threatened with legal action unless it speedily refunds customers whose holidays were cancelled due to the pandemic last year:

My colleague Mark Sweney reports:

The UK competition watchdog has said it will take legal action against Lastminute.com unless it pays more than £1m in refunds within the next seven days to customers it still owes for holidays cancelled because of the Covid-19 pandemic.

In December, the flight and hotel booking site agreed to pay £7m in refunds by the end of January to more than 9,000 customers whose holidays were cancelled because of coronavirus, following an investigation by the Competition and Markets Authority.

The CMA stepped in after holidaymakers spent months unsuccessfully trying to secure refunds from the online travel agent, many dating back to trips cancelled during the UK lockdown in March and April.

The CMA said on Friday that Lastminute.com still owed more than £1m to 2,600 customers, two weeks after its promised repayment deadline....

In other news...mobile operator O2 has been fined £10.5m for overcharging 140,000 customers several million pounds, due to billing errors that persisted for almost a decade.

Sunak: UK's GDP fall is in line with peers

Chancellor Rishi Sunak has insisted that the UK didn’t perform as badly against international peers as the headline GDP figures suggest.

He argues that the UK is ‘very much in line’ with the rest of the class, if you look at nominal GDP, and strip out the different ways the data is calculated (see previous post for my attempted explanation).

Reuters explains:

Britain’s finance minister Rishi Sunak said the country’s record 9.9% fall in GDP in 2020 was in line with other countries when measured on a comparable basis.

“I think it’s important to clear up this question of our comparative economic performance actually,” he told UK broadcasters.

“We calculate GDP in a different way to pretty much every other country (...) now if you correct for that difference or look at it on a more comparable way, nominal GDP, what you find is, our performance is actually very much in line with all our international peers.”

He added that Britain’s employment performance during the pandemic was better than most of its international peers.

This chart, from this morning’s GDP report, shows nominal GDP rather than ‘real’ growth rate across some major economies.

As you can see, it shows the UK still suffered a sharper slump than both Germany and the US in the first half of 2020 - but then recovered more more strongly in H2 too.

The ONS published a piece on international comparisons earlier this month. It concluded that, if you remove volume estimates of government consumption expenditure, the UK has still experienced the largest contraction among the G7 in the first nine months of 2020, but that the relative comparison is not as large as the headline figure suggest.

Given the uncertainty around economic data right now, the definitive picture may not be clear for some time....

On paper, the UK economy suffered a worse slump than other advanced economies last year -- although it’s been a bitterly tough year all round.

For example, according to official data, in 2020....

But the Office for National Statistics does recommend some caution here; government spending is measured differently around the world, which is more significant when tens of billions are being spent on PPE, test and trace, and other healthcare needs during a pandemic, and when schools are hit by lockdowns.

GDP figures are also adjusted for inflation (to calculate ‘real GDP’), and the ONS has assumed a big jump in the cost of UK government services (such as higher healthcare costs) in the pandemic.

So, on a nominal basis (not adjusting for price changes), the ONS calculates the UK shrank by 4.8% in 2020 (rather than 9.9% in real terms), and grew by 1.6% in the fourth quarter (rather than 1% in real terms).

James Mackintosh of the Wall Street Journal has tweeted some handy details:

Kit Juckes, foreign exchange expert at French bank Société Générale, has delved into the history books too:

Even George Washington, born on February 22, 1732 wasn’t around the last time Great Britain, as it was then, saw a bigger GDP decline than 2020’s 9.9%.

This time it’s a pandemic to blame whereas back then, it was a Great Frost, which saw ice in the North Sea, and the War of Spanish Succession (1701-1714) which was doing the damage. There 13.4% fall in British GDP in 1709 was followed by a 9.1% fall in 1710 and overall, GDP was smaller in 1715 than it was before the start of the war. Fighting with continental neighbours is never good for the economy….

He also provides this chart of GDP since the 1950s....

...adding:

Last year was extraordinary but despite concerns about new variants of the virus and continued economic restrictions, consensus looks for a 4.6% rebound in 2021.

Updated

Here’s a handy chart putting 2020’s GDP slump in historical context, from the Independent’s Ben Chu:

Larry Elliott: Expect a slump this quarter

The UK may avoid a double-dip recession (despite its worst year since Queen Anne was on the throne) but it won’t feel like it to the millions suffering economic damage from the pandemic.

Our economics editor, Larry Elliott, explains:

The fact that the economy expanded by 1.0% in the period between October and December means that the UK has avoided a double dip recession – two separate periods in which GDP contracts for at least two quarters.

But even if this is not a double dip recession it is going to feel like one, because the sharp slowdown in activity between the third and fourth quarters of 2020 will be followed by a big slump in output in the first three months of 2021. The fresh downturn could easily see output fall by a further 4%.

Rishi Sunak’s response to the latest ONS figures was telling. There were rumours coming out of the Treasury a few months ago that the chancellor would start withdrawing support for the economy in the 3 March budget in order to start repairing the damage caused to the public finances.

That idea has been overtaken by events. Sunak said the budget would be used to set out how the government would support jobs and the economy through the next phase of the pandemic.

The message from the latest ONS data is that the economy could rebound quickly once restrictions on activity are lifted. The message from the chancellor is that it may take some time before that happens.

More here.

Full story: UK's worst slump in 300 years

Britain’s economy shrank by the most in 300 years in 2020 amid the fallout from the coronavirus pandemic but has avoided a double-dip recession, according to official figures, my colleague Richard Partington writes.

The Office for National Statistics said gross domestic product (GDP) fell by 9.9% in 2020 as no sector of the economy was left unscathed by lockdowns and plummeting demand during the pandemic. It was the biggest fall in annual GDP since the Great Frost of 1709, when the economy shrank by 13%.

However, the latest figures showed the economy has narrowly avoided a double-dip recession, with growth of 1% in the final quarter of the year. Looser Covid restrictions in the run-up to Christmas enabled GDP to grow by 1.2% in the month of December, following a 2.6% fall in November.

Pubs, bars and restaurants were able to recover some lost ground and retail sales improved in December, after the November lockdown in England ended and before tougher measures were imposed at the end of the year as infections surged. Growth was also fuelled by a rise in healthcare activity, mainly because of coronavirus test and trace schemes across the UK.

Growth of the economy in December despite tougher public health restrictions also came as companies adapted to the measures by shifting working patterns and altering their business models – including a boom in online shopping, and pubs and restaurants operating takeaways....

More here:

Full story: KPMG’s UK chairman Bill Michael resigns

KPMG’s UK chairman, Bill Michael, has resigned after telling staff to “stop moaning” during a virtual meeting about the coronavirus pandemic and the impact of lockdown on people’s lives.

Michael, who has headed the company since 2017, was speaking at a virtual town hall meeting on Monday with members of the firm’s financial services consulting team when he made the comments.

The 52-year old Australian, who also said that staff should stop “playing the victim card” and described the concept of unconscious bias as being “complete and utter crap for years”, apologised and said on Friday the scandal over his comments had made his position at the accounting giant “untenable”.

Michael said:

“I love the firm and I am truly sorry that my words have caused hurt among my colleagues and for the impact the events of this week have had on them. In light of that, I regard my position as untenable and so I have decided to leave the firm. It has been a privilege to have acted as chair of KPMG. I feel hugely proud of all our people and the things they have achieved, particularly during these very challenging times.”

More here:

The sudden end of Bill Michael’s reign at KPMG UK is one of the more dramatic exits at UK PLC in recent years.

The Daily Telegraph has an interesting piece on his tenure, with insiders saying Michael had been sheltered from ad hoc public interactions to prevent him veering off-message (a mission which went awry this week...).

Here’s a flavour of the Telegraph piece:

When Bill Michael ran for election as KPMG’s chairman in the UK in 2017 some insiders jokingly referred to him as “the Donald Trump candidate”.

The 52-year-old Australian dismissed the moniker but his comments to staff this week raised parallels with the former US president, a noted opponent of coronavirus lockdowns and the “woke” Left.

At a virtual town hall meeting on Monday, frustrated staff vented about their working conditions and allegedly raised gripes over pay and bonuses.

Michael told them not to “sit there and moan” and to “take control of your life”. He also told staff, most of whom are working from home, that they were in a “very lucky sector”.

Accountants have been able to continue working with far less interruption than those in other industries.

Michael hit out at partners and other staff after conversations “where it almost feels that this is being done to them”.

Unimpressed, he told them: “You can’t play the role of victim unless you’re sick”.

Some snap reaction to Bill Michael’s departure at KPMG:

Updated

KPMG UK chair resigns

Newsflash: The UK chair of KPMG has resigned, days after telling staff to “stop moaning” about work during the pandemic, and claiming the concept of unconscious bias was “complete crap”.

KPMG UK has announced that Bill Michael, its Chair and Senior Partner, has resigned and will leave the firm at the end of this month.

It comes after KPMG launched an investigation into comments made by Michael during an online meeting with the firm’s financial services consulting team on Monday, which shocked many staff.

In a statement, Bill Michael says he is ‘truly sorry’ for the impact of his comments, and sees his position as ‘untenable’:

“I love the firm and I am truly sorry that my words have caused hurt amongst my colleagues and for the impact the events of this week have had on them. In light of that, I regard my position as untenable and so I have decided to leave the firm. It has been a privilege to have acted as Chair of KPMG.

I feel hugely proud of all our people and the things they have achieved, particularly during these very challenging times.”

Michael had already stepped aside while City law firm Linklaters investigated his comments. Bina Mehta, Senior Elected Board Member, has stepped in as Acting Chair of the Board and Mary O’Connor, Head of Clients and Markets has assumed his day-to-day Executive responsibilities as Acting Senior Partner.

It is the first time that either role has been occupied by a woman in the 150-year history of the firm.

Acting chair Bina Mehta said:

“Bill has made a huge contribution to our firm over the last thirty years, especially over the last three years as Chairman, and we wish him all the best for the future.”

The firm adds that it will undertake a leadership election in due course.

Updated

Every sector of the UK economy suffered an extremely sharp slump in output last year:

During 2020:

  • services fell by 8.9%
  • production fell by 8.6%
  • construction fell by 12.5%
  • agriculture fell by 9.4%

And although growth was stronger than expected last month, Debapratim De, senior economist at Deloitte, predicts the economy won’t return to pre-pandemic size until next spring.

“While the economy registered its sharpest annual contraction on record last year, activity was 6.3% below pre-pandemic levels in December – a better outcome than many had expected.

“Stricter and more prolonged restrictions are likely to drive a further contraction in the first quarter before vaccinations and better weather enable a summer rebound. However, regaining lost activity due to the pandemic will take longer. We forecast UK GDP to reach pre-pandemic levels in spring 2022.

Economist: UK is G7 laggard again

Economist Samuel Tombs of Pantheon has shown how the UK has suffered a worst slump than other major economies last year:

Economic research institute NIESR predicts the UK will suffer a ‘sharp decline in activity’ in the first three months of this year - until the Covid-19 vaccination programme spurs a recovery:

Here’s Reuters’ take:

Last year’s fall in output was the biggest since modern official records began after World War Two, and longer-running historical data hosted by the Bank of England suggest it was the biggest drop since 1709.

The fall is also steeper than almost any other big economy, though Spain - also hard-hit by the virus - suffered an 11% decline.

Britain has reported Europe’s highest death toll from COVID-19 and is among the world’s highest in terms of deaths per head.

Some of the damage also reflects how Britain’s economy relied more on face-to-face consumer services than other countries, as well as disruption to schooling and routine healthcare which few other countries factored in to GDP.

However, Britain has vaccinated many more people than other European countries so far, raising the prospect of a bounce-back for its economy later this year.

More here: UK economy suffers record 9.9% slump in 2020

Although the UK economy avoided a contraction in October-December, it is probably now shrinking due to the current lockdown restrictions.

Dean Turner, economist at UBS Global Wealth Management, explains:

“In lockstep with much of continental Europe, the UK economy fared better than feared in the final quarter of 2020. GDP expanded by 1%, a significant slowdown from the 16% growth over the previous three months, but a contraction was avoided.

The monthly GDP series shows that the UK’s dominant services sector returned to growth in December but this is unlikely to last. 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. 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

Alpesh Paleja, CBI Lead Economist, warns that the UK economy will continue to struggle until the pandemic is under control - and that means businesses need more help:

“The UK economy grew slightly towards the end of the last year, as a second lockdown in November was partly offset by a pick-up in GDP over December. But with restrictions tightening again in the New Year, we’ll likely see further dips in activity.

“Getting the pandemic under control is critical to our recovery, and speedy rollout of vaccines gives us some hope. But until we can end the stop-start cycle of lockdowns, businesses will need support to continue in parallel with restrictions.

Updated

This chart of monthly changes in UK GDP would have seemed incomprehensible before the pandemic:

The recovery in December (GDP rose 1.2%) was mainly driven by service sector firms, as shops, food outlets and other hospitality firms reopened after the November lockdown.

Service sector output grew 1.7%, which still leaves it 6.9% below its pre-pandemic peak.

Manufacturing grew 0.3%, and is still 3.4% below peak ....as is construction, where output fell 2.9% in December.

Here’s a breakdown of the economy by sector, for December:

Sunak: Economy experienced a serious shock

Chancellor of the Exchequer, Rishi Sunak, says:

“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. 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.

“That’s why my focus remains fixed on doing everything we can to protect jobs, businesses and livelihoods.

“At the Budget I will set out the next stage of our Plan for Jobs, and the support we’ll provide through the next phase of pandemic.”

Updated

This chart shows how the UK economy performed last year:

GDP shrank by 2.9% in Q1, followed by a record-breaking 19% slump in Q2 - due to the first national lockdown. The economy then posted 16% growth in Q3, before the second wave of Covid-19 led to fresh restrictions - slowing the recovery to 1% in Q4.

The resulting 9.9% slump leaves the economy back at levels seen during 2013.

UK GDP: the key ponts

Here are the main points from today’s UK GDP report:

  • UK gross domestic product (GDP) in Quarter 4 (Oct to Dec) 2020 is estimated to have grown by 1.0%, following revised 16.1% growth in Quarter 3. Despite two consecutive quarters of growth, the level of GDP in the UK is 7.8% below its Quarter 4 2019 level.

  • Over the year 2020 as a whole, GDP contracted by 9.9%, marking the largest annual fall in UK GDP on record.

  • In Quarter 4 2020, there have been increases in services, production and construction output, although the output of these industries remained below their Quarter 4 2019 (pre-pandemic) levels.

  • There has been a further recovery in government consumption and, to a lesser extent, business investment in Quarter 4 2020 reflecting the easing of public health restrictions, however, the levels remain below their pre-lockdown level.

UK GDP shrank 9.9% in 2020 - "worst fall on record"

The UK has suffered its worst annual slump on record, with the economy contracting almost 10% last year amid the pandemic.

The Office for National Statistics reports that over the year 2020 as a whole, GDP contracted by 9.9%, “marking the largest annual fall in UK GDP on record”.

That is slightly worst than the deep recession in 1921, when GDP fall by 9.7% amid coal strikes, soaring unemployment and depression following the first world war.

It is only beaten by the annus horribilis of 1709, when the Great Frost froze the country, driving GDP down by an estimated 13% -- well before we had proper economic statistics.

UK avoids double-dip recession with 1% growth in Q4

The UK has avoided a double-dip recession.

GDP expanded by 1% in the final three months of 2020, the ONS reports -- better than the 0.5% growth which economists expected.

Updated

UK economy grew 1.2% in December

The GDP data is out.... and it shows that the UK economy grew by 1.2% in December.

That’s a little stronger than forecast, showing that activity picked up after the second national lockdown, in November, ended.

The Office for National Statistics says:

GDP increased by 1.2% in December 2020 as restrictions were eased early in the month in many parts of the UK.

The largest contributor to this increase was accommodation and food service activities and other services, as the easing of restrictions across many parts of the UK in early December boosted demand for these consumer facing services. Health also contributed positively to growth in December 2020, as a result of increased activity, mainly due to the coronavirus testing and tracing schemes across the UK.

Bank of England: UK economy to bounce back

The Bank of England’s chief economist has predicted that the UK economy will come roaring back this year, as lockdown measures are eased.

Andy Haldane argues that people will embark on a spending spree -- visiting pubs, cinemas and restaurants more often, and splashing out on a new TV, car or house.

By June, Haldane estimates, households could have built up £250bn of savings, which could catalyse a recovery later this year.

Writing in the Daily Mail, he says:

“So come the Spring, we can expect the UK economy to be firing on all three cylinders – households, companies and government.

While today the economy is shrinking and inflation is well below target, a year from now annual growth could be in double-digits and inflation back on target.

The economy is poised like a coiled spring. As its energies are released, the recovery should be one to remember after a year to forget.”

Updated

Introduction: UK GDP in focus today

Good morning.
Today we discover how the UK economy fared in December, and learn just how much economic damage was caused by the pandemic last year.

The latest GDP data, due at 7am, are expected to show that the economy grew by 1% in December, with the reopening of shops after the November lockdown providing a pre-Christmas lift.

That would mean growth during the last quarter of the year of around 0.5%, economists predict, as the economy contracted in November.

That’s a sharp slowdown on the record growth of around 16% seen in Q3, but would still mean the UK avoided sliding towards a double-dip recession (although the economy is probably shrinking in the current quarter).

David Madden of CMC Markets says:

The preliminary reading of fourth quarter GDP will be published at 7am (UK time), economists are expecting to see 0.5% on a quarterly basis, which would be a big fall from the 16% growth registered in the third quarter.

Services account for approximately 70% of the UK’s economic output. The services PMI levels in October, November and December were 51.4, 47.6 and 49.4 respectively. A reading below 50.0 means negative growth. It is clear the tougher restrictions that were introduced from November onwards dented the all-important industry. Given the uncertainty that existed in relation to the UK-EU trading relationship at the back end of 2020, there could have been stockpiling of goods.

Today’s report will also confirm that the UK has suffered one of its worst economic slumps ever last year.

Economists predict the economy shrank by around 10% in 2020, which would be the worst performance since the Great Frost of 1709, slightly worse than the crisis of 1921 (when GDP fell 9.7%).

The agenda

  • 7am GMT: UK GDP report for December, and Q4 2020
  • 7am GMT: UK trade balance for December
  • 3pm GMT: University of Michigan survey of US consumer sentiment

Updated

 

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