LONDON (Reuters) – The UK economy shrank by less than feared in January as the country went back into a coronavirus lockdown, but trade with the European Union was hammered when new post-Brexit rules went into effect.
Gross domestic product was 2.9% lower than in December, the Office for National Statistics said.
Economists polled by Reuters had expected a 4.9% contraction and government bond prices fell as investors took the data as a sign that the Bank of England was less inclined to pump more stimulus into the economy.
Britain experienced its worst economic slump in three centuries last year, when it contracted by 10%. It has also been hit by Europe’s largest COVID-19 death toll of more than 125,000 people.
But the country is speeding ahead with vaccinations and, following Friday’s figures, economists said they expected the economy to contract by 2% in the first quarter of 2021, half of the BoE’s hit forecast last month.
Many companies are learning to deal with lockdowns, including retailers who have stepped up their online shopping operations and service companies who have tried to help employees do their work from home.
Samuel Tombs, with Pantheon Macroeconomics, predicted a 5% growth rebound in the second quarter “which would reduce the likelihood that the Monetary Policy Committee will cut bank rates this year.”
The BoE appears to be keeping its stimulus programs on hold next Thursday.
The ONS figures also showed that exports and imports from Britain to the EU had fallen the most, although there was a delay in collecting some data and there were signs of a recovery towards the end of January.
Exports of goods to the EU, excluding non-monetary gold and other precious metals, decreased by 40.7%. Imports fell by 28.8%.
Many companies exported imports to avoid border disruption from January 1, and global trade flows have been hit by the coronavirus pandemic.
SERVICES HIT
Overall GDP figures have been badly affected by the impact of social distancing rules on Britain’s vast service sector.
“The economy took a noticeable blow in January, albeit smaller than expected, with shops, restaurants, schools and hairdressers all affected by the latest lockdown,” said Jonathan Athow, a US statistician.
Production fell for the first time since April, while car production fell sharply.
But ING economist James Smith pointed out the GDP boost from the UK’s response to COVID-19’s health policy: “What really stands out is the health spending, where the ramp-up of the government’s testing and tracking and vaccine programs 0 , Added 9% to the GDP figures. only.”
The economy remained 9% smaller than in February last year, before the pandemic hit.
Prime Minister Boris Johnson plans to gradually ease England’s coronavirus restrictions before most are lifted at the end of June.
Growth in the coming months is also likely to be boosted by Treasury Secretary Rishi Sunak’s announcement last week that he will pump an additional 65 billion pounds ($ 90.6 billion) into the economy, including an extension of his job-protective leave scheme. .
The ONS said service output shrank 3.5% in January from December. The Reuters survey showed a shrinkage of 5.4%.
Reporting by William Schomberg; Edited by Alistair Smout, Philippa Fletcher and John Stonestreet