UK avoids double-dip recession

But Covid shrank economy by 10% for the first time since Great Freeze of 1709

BRITAIN has managed to dodge a double-dip recession after the economy grew by 1 per cent in the last three months of 2020.

Despite the November lockdown and a muted Christmas, the UK avoided shrinking again between October and December, according to data from the Office for National Statistics.

And while the economy is expected to contract during the first three months of this year – as the lockdown continues to bite – Britain is expected to dodge a double-dip recession – where output, or gross domestic product (GDP), shrinks for two quarters in a row.

Thomas Pugh, an economist at Capital Economics, said: ‘The rise in GDP in the fourth quarter, despite the Covid-19 lockdown in November and restrictions in December, is further evidence that the economy has built up some immunity to lockdowns.

‘And even though the third Covid-19 lockdown means that the economy will almost certainly take another step down in January, a technical double-dip recession has now

WHY UK IS SET TO ROAR BACK

been avoided and GDP should rebound sharply in the second half of 2021.’

The economy still shrank by a record 9.9 per cent last year, more than double the drop in 2009 during the financial crisis. This contraction is larger than in the aftermath of the World Wars, and the Bank of England believes it is the sharpest drop in output since the Great Frost of 1709.

The 1 per cent growth in the fourth quarter was tiny compared to the 16.1 per cent rebound in the previous three months. And the Bank of England thinks output will shrink by 4 per cent over the first quarter of this year due to lockdown restrictions.

This will put pressure on Chancellor Rishi Sunak to come up with more support in his Budget next month, even as he tries to get a grip on the UK’s spiralling debt pile.

Mr Sunak told the BBC yesterday: ‘Today’s figures show that last year our economy experienced a significant shock, and also some signs of resilience over winter.

‘Right now, many families and businesses are experiencing hardship. That’s why we’ve put in place a comprehensive plan for jobs to support people through this crisis, and we will set out the next stage of our economic response at our Budget in early March.’

But the piles of savings some households have built up during the pandemic should help the UK bounce back.

Bank of England economist Andy Haldane told yesterday’s Mail the economy was ‘poised like a coiled spring’.

Dean Turner, from banking giant UBS, said: ‘As and when restrictions are eased, we continue to expect a vigorous rebound in the economy.’

Sterling was trading yesterday at around $1.384, up 0.2pc, but Mr Turner expected the pound to be worth about $1.45 by the end of the year – its highest level since early 2016.