The UK’s economy contracted more than that of the G-7 last year, which, according to the Bank of England, will be the country’s worst economic downturn in more than 300 years.
What went wrong? Downtime has caused more pain for the UK than other members of the Group of Seven advanced economies, in part because it relies mainly on consumer spending, which evaporated during one of Europe’s deadliest Covid-19 outbreaks. The economy was already weak after four years of negotiations over Britain’s departure from the European Union, in which business investment fell and households fell back in their spending.
This is the starting point for Britain’s new relationship with the EU, which began on January 1 with a loose free trade agreement. Earlier this month, Prime Minister Boris Johnson again announced a nationwide lockdown to fight a new, more contagious variant of the coronavirus. That puts the UK economy on track to contract again in the first quarter of the year, when companies also need to get a grip on new European trading arrangements.
Growth in the UK was already weak during the pandemic, driven by weak business investment, low productivity and low income growth. Once the coronavirus hit, the UK economy shrank in the first nine months of the year by more than its counterparts in the G-7. The figures for the last quarter, expected on February 12, are expected to show that the economy has contracted again.
The UK took a bigger hit because about 13% of its annual gross domestic product comes from spending on recreation and culture, restaurants and hotels, a higher share than any other G-7 country. Businesses that rely on direct contact with consumers – bars and restaurants, sporting events, hotels and theaters, cinemas and museums – were hindered when social distance became the norm and the spread of the virus forced them to shut down. The current lockdown, which is in effect until mid-February, is closing schools and non-essential stores, and people have been told to only go out when necessary.