Britain’s economy experienced its biggest annual decline in 300 years in 2020 amid the fallout from the coronavirus pandemic but will avoid a double-dip recession, according to official figures.
The Office for National Statistics said gross domestic product (GDP) fell by 9.9% in 2020, as no sector of the economy was left unscathed by lockdowns and plummeting demand during the pandemic. It was the biggest fall in annual GDP since the Great Frost of 1709, when the economy shrank by 13%.
However, the latest figures showed the economy narrowly avoided a double-dip recession, with growth of 1% in the final quarter of the year, surpassing expectations earlier in the autumn for a renewed fall in GDP as the pandemic worsened. Looser Covid restrictions in the run-up to Christmas enabled the economy to grow at a monthly rate of 1.2% in December, after a 2.3% fall in November during the second English lockdown.
Far surpassing the damage caused by the 2008 financial crisis, the annual drop in output caused by the Covid-19 emergency narrowly exceeded a 9.7% decline in 1921, when Britain was recovering from the first world war and the Spanish flu pandemic.
Pubs, bars and restaurants were able to recover some lost ground, and retail sales improved in December after the November lockdown ended and before tougher measures were imposed. Growth was also fuelled by a rise in healthcare activity, mainly because of coronavirus test-and-trace schemes across the UK.
Analysts said companies adapting to restrictions by shifting their working patterns and altering their business models – including a boom in online shopping, and pubs and restaurants operating takeaways – helped to keep the economy growing late in 2020 despite increasingly tough public health restrictions.
Output in the accommodation and food services sector – which includes hotels and restaurants – fell by a third in the fourth quarter overall but fared better than in the first lockdown, when the country came to a near standstill.
With looser coronavirus restrictions than last spring, output in the services sector – which makes up 80% of the economy – grew by 0.6%. Largely allowed to stay open, industrial production and manufacturing activity also grew, returning closer to pre-pandemic levels.
The UK economy shrank for two successive quarters in the first half of last year, meeting the technical definition of a recession. The economy shrank by 2.9% in the first quarter of 2020, when the pandemic first spread to the UK, before a record 19% fall in the subsequent quarter during the spring lockdown.
The economy then grew at a record 16.1% in the third quarter, fuelled by the summer reopening of the hospitality sector, before the second wave of the pandemic forced the launch of renewed restrictions. Economists forecast a renewed plunge in the opening months of 2021, meaning a drop in the fourth quarter of 2020 would have marked the first step into a double-dip recession, defined as two recessions following each other in quick succession.
The chancellor, Rishi Sunak, said the latest figures showed Britain’s economy had experienced a “serious shock” as a result of the pandemic. “While there are some positive signs of the economy’s resilience over the winter, we know that the current lockdown continues to have a significant impact on many people and businesses,” he said.
“That’s why my focus remains fixed on doing everything we can to protect jobs, businesses and livelihoods. At the budget I will set out the next stage of our plan for jobs, and the support we’ll provide through the next phase of pandemic.”
Although the economy has avoided a double-dip recession, analysts said it was probably shrinking at the start of the year, with the toughest Covid lockdown restrictions since the first wave weighing down activity. The government is under mounting pressure to set out its roadmap for relaxing lockdown and fresh economic support measures for businesses and workers reeling from a year of disruption.
Anneliese Dodds, the shadow chancellor, said Britain had recorded the highest death toll in Europe and among the worst declines of any major economy. “Businesses can’t wait any longer. The chancellor needs to come forward now with a plan to secure the economy in the months ahead, with support going hand in hand with health restrictions,” she said.
Britain’s annual economic decline was the worst in the G7. GDP fell by 3.5% in the US, by 5% in Germany, 8.3% in France and 8.9% in Italy. The Canadian economy is forecast to have shrunk by 5%, and Japan’s by about 5.6%. However, the UK fared better than Spain, where the economy collapsed by 11% last year.