The UK economy grew by 7.5% overall in 2021 – the fastest rate since the second world war – but analysts say the speedy recovery was only a result of 2020’s poor performance.
Economic growth plummeted when Covid initially struck and despite the strong growth last year, GDP has only just recovered to the pre-pandemic levels of February 2020.
Steve Clayton, fund manager at HL Select, said investors should not “get carried away” as the past few years have been “a pretty disastrous period for economic growth”.
UK GDP growth since 2007
Source: Office for National Statistics
Although economic activity could rise now that most Covid restrictions have been lifted, record-high inflation is still on the rise and several more interest rate hikes are expected this year, which has caused concerns for analysts.
Annabelle Williams, personal finance specialist at Nutmeg, said: “Storm clouds have gathered rapidly over the economy, with interest rates doubled, £700 added onto the typical energy bill and inflation expected to hit 7.2% in April.”
This rapid rise in the cost of living is likely to limit the amount consumers are willing to spend moving forward, slowing the rapid economic progress made over the past year.
Derrick Dunne, CEO of YOU Asset Management, said however that investors should not be concerned by the results, but remain on “high alert” for any potential shocks.
“With growth expected to have been slow in January and yet more monetary policy changes predicted next month, we are likely to see more volatility in the months ahead,” he said.
Although last year strong, it ended with a wimper. Indeed, UK GDP retracted 0.2% in December as Plan B measures reigned back economic activity.
The drop from November’s 0.7% rise was mostly due to a 3% decline in consumer facing services, with fewer customers going to physical shops and venues as Omicron took hold.
Although Omicron was not as impactful as other Covid strands, it led to a 9.2% decline in accommodation and food services in December, with retail sales also down 3.7%.
Clayton added: "The impact of Omicron might have been less in terms of overall economic activity than earlier variants, but it still knocked the consumer sectors badly, just as they were starting to claw back lost ground.”
Cancellations in the hospitality industry were up 44% in December as Christmas gatherings were scrapped following government advice.
Overall, GDP rose 1% in the final quarter of 2021. Experts suggested the economy would grow in the first quarter of 2022, although there were likely to be further reductions in January.
Modupe Adegbembo, G7 economist at AXA Investment Managers, added: “We expect GDP to contract further in January, following sharp declines in activity, before rebounding robustly into February and March – we expect first quarter growth of 0.4%.”