The impact of the Covid-19 coronavirus saw UK GDP contract by 9.9 per cent, according to data from the Office for National Statistics, as lockdown and pandemic restrictions saw economic activity slump.
But there was some positive news, as it emerged that the economy grew by 1.2 per cent in December, thanks to restriction being eased at the start of the month.
This boosted demand for consumer-facing services such as accommodation and hospitality, as well as the annual Christmas spending spree.
December’s GDP growth meant that the UK will avoid a double-dip recession, for now.
Weak growth of 0.6 per cent in October gave way to a contraction of 2.3 per cent in November as the UK went into a month-long lockdown, but December’s rebound put Q4 growth at 1 per cent.
Last year, GDP contracted by 2.9 per cent in Q1 and by 19 per cent in Q2 before surging to 16.1 per cent during Q3.
Due to the pandemic, however, the ONS warned that the Q4 GDP estimates “are subject to more uncertainty than usual and are likely to have larger than usual revisions in subsequent releases”.
Charles Hepworth, investment director at GAM Investments, said the UK economic growth last year was the worst of all G7 developed nations and reflected Brexit trade tensions as well as the coronavirus.
He said: “It must come as some relief that the quarterly print was not negative as inevitably this current quarter will likely be, as that would have resulted in a double dip recession.
“We will need to see an end to lockdowns and restrictions before growth begins its natural ascendency.
He added: “Thankfully as the impressive pace of vaccine rollout in the UK takes hold, it has to be the more likely outlook that growth will come roaring back, but a note of caution that that, in our view, is still one to two quarters away.”
Melanie Baker, senior economist at Royal London Asset Management, said while December’s pickup in GDP was encouraging the UK economy still faces major challenges going forward.
She said: “Despite November’s lockdowns, the UK economy managed to eke out a more than respectable pace of growth in Q4 2020, by pre-crisis standards.
“Given that the economy shrank 2.3 per cent month-on-month in November, the bounce in December was relatively tepid however, and January will see the UK economy contract yet again.”
Baker continued: “A strong second half recovery looks in prospect given the UK’s so far successful vaccine rollout, but the uneven global rollout and threats of virus mutation still threaten to make Covid a reduced, but ongoing challenge for the UK economy.”
Adrian Lowcock (pictured), head of personal investing at Willis Owen, pointed out that GDP statistics don’t drive the stock market and said investors shouldn’t abandon their long-term investment plans off the back of the news.
He said: “What is crucial is what comes next, and we expect activity and pent-up demand to help the UK economy bounce back as restrictions are eased.
“Businesses have already adapted to this new way of living, and with the additional stimulus and support from the government we could see resurgent growth this later year and in 2022.”
Indeed, Willem Sels – chief investment officer of HSBC Private Banking and Wealth Management – seconded the idea that UK equities could become attractive investment opportunities during the global market recovery as they remain cheap.
However, Sels warned there was some uncertainty that the end of lockdown restrictions would unleash vast amounts of pent-up consumer spending. But he added that the current vaccine programme should contribute to better growth in the future.
He said: “In the short term, it remains unclear when lockdowns will end, and whether consumers will rush out to spend on travel and entertainment when they are free to do so.
“On the whole, rapid vaccinations paint a positive picture for future growth, as the Bank of England already noted last week.
“Stock markets tend to look ahead and should be supported by the prospect of the global re-opening.”