Economy shrinks by record 10% in 2020

Economy shrinks by record 10% in 2020
 Credit: Dado Ruvic

The UK economy shrank by almost 10 per cent during 2020 as restrictions put in place to curb the coronavirus pandemic hurt economic activity.

Figures from the Office of National Statistics, published this morning (February 12), showed gross domestic product fell by 9.9 per cent over the year — a record yearly contraction and more than twice as much as the previous largest annual fall on record.

But there was brighter news for the end of the year, as GDP increased by 1.2 per cent in December. 

The growth will allay fears of a double dip recession, which resurfaced in November when fresh lockdown restrictions saw the economy shrink 2.3 per cent.

December’s GDP was still 6.3 per cent below the levels seen pre-pandemic in February 2020, however.

The services sector was the main contribution to growth in December, increasing by 1.7 per cent as a number of consumer facing industries reopened following easing of restrictions.

Production grew marginally by 0.2 per cent while the construction sector acted as the biggest drag, dropping 2.9 per cent in December after months of increase.

Hinesh Patel, portfolio manager at Quilter Investors, said: “It is fair to say the UK economy experienced an annus horribilis in 2020 as it experienced a trifecta of a public health crisis, economic lockdowns and continued uncertainty around Brexit.

“However, 2020 is in the past and the UK arguably has a promising second half of the year ahead given the success of the vaccine rollout. 

“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.”

But Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said it was “hard to see the light at the end of the tunnel when the tunnel keeps getting longer”, noting there was no roadmap yet laid out to reopen the economy.

She added: “Vaccine rolls outs are certainly helping spread optimism, but confidence is unlikely to start rebounding until consumers feel free to shop, dine out, visit bars and go on holiday once more.”

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