EconomyFeb 11 2022

Economy grows by 7.5% in 2021 despite fall in December

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Economy grows by 7.5% in 2021 despite fall in December
Tolga Akmen

The UK economy grew by 7.5 per cent in 2021, despite a fall by 0.2 per cent in December.

According to figures released today by the Office for National Statistics, last year’s rebound came after a 9.4 per cent fall in 2020. 

Over 2021 the economy had been recovering with GDP having risen by 1.3 per cent in Q3 compared with 4.8 per cent in the second quarter of 2021.

But GDP growth slowed in December as a result of the Omicron variant, falling by 0.2 per cent meaning it ended the year sat at the same level it was at in February 2020.

The main drivers of the fall in December were retail trade, accommodation and food service activities, as the British public reduced their social contacts to avoid having to self-isolate over Christmas.

Despite this, GDP growth fell by less than expected in December with many economists predicting a fall of 0.6 per cent.

Ed Monk, associate director at Fidelity International, said although today’s growth data suggested the UK has broadly recovered from the ground lost to the pandemic, it was clear some momentum has been lost in the past few months. 

“A dip in growth in December was forecast and is understandable given the emergence of Omicron, which led many to restrict their activity in the run-up to Christmas,” he said.

“The question now is whether a fully open UK economy can step up a gear. Consumer sentiment will be tested by the rising cost of living and with tax rises on the way that will squeeze monthly budgets further. Wages are rising but may lag inflation for some time.”

He added: “The Bank of England is worried enough about inflation that it is now raising interest rates and is likely to continue tightening this year. Very weak growth could alter that plan but for now the fact the economy is growing means rate-setters will remain hawkish.”

Meanwhile, Paul Craig, portfolio manager at Quilter Investors said it would be imperative to watch inflation and monetary policy to see the likely impact on future growth. 

“Inflation has taken root and although it might not be long lasting at its current elevated levels, we do expect it to be a feature over the coming 12 months. This ultimately threatens the economic recovery and the UK’s ability to grow at a sustained rate,” he said. 

“Also, we must not forget that other risks remain present. While Boris Johnson has called time on Covid, only time will tell if Covid is listening, and we have seen the impact this can have on the U.K. large service sector.”

In the Budget last year, the Office for Budget Responsibility said it expected the UK economy to be back at pre-pandemic level by the "turn of this year”, and revised up its forecasts for UK GDP growth in the coming years.

sonia.rach@ft.com

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