The coronavirus pandemic dealt the UK financial system a bigger blow than beforehand estimated, in accordance with official knowledge on Monday that confirmed the nation recorded its greatest fall in progress in gross home product since 1709.
The Office for National Statistics stated it had revised down annual quantity GDP progress in 2020 by 1.7 proportion factors, which means that it fell by 11 per cent, the biggest in additional than 300 years and the worst recorded amongst G7 nations.
Craig McLaren, ONS head of nationwide accounts, stated “the up to date estimates for 2020” confirmed that “general, the financial system fared worse than we initially estimated”.
The revision signifies that the financial system might now be smaller than initially estimated, and will counsel that the UK confronted a cost of living crisis earlier than it managed to get well absolutely from the hit of the pandemic.
Due to the downward revision for 2020, “progress in 2021 and 2022 might be ranging from a decrease level than we beforehand estimated”, added McLaren.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, stated that, assuming progress charges for the reason that fourth quarter of 2020 aren’t altered, the revision implied that GDP within the second quarter of 2022 was 1.7 per cent beneath its peak within the fourth quarter of 2019, relatively than 0.6 per cent above it.
“The UK financial system’s structural issues, due to this fact, look even worse than earlier than, with output nonetheless nicely beneath ranges earlier than Covid struck, regardless of very low unemployment and important will increase in authorities spending,” stated Tombs.
Even earlier than the revisions to the 2020 knowledge, the UK’s financial restoration was lagging that of different nations. Within the second quarter of this 12 months, output within the US was 2.5 per cent above pre-pandemic ranges, whereas eurozone output was 1.4 per cent bigger.
In 2020, Covid-19 restrictions resulted in a pointy drop in output in most nations, however the double-digit fall registered within the UK compares with contractions of between 3.4 per cent and 5.2 per cent within the US, Canada, Japan and Germany.
The ONS’s revision might additionally result in the Financial institution of England’s already bleak financial forecast proving optimistic, except there are upward revisions to the most recent knowledge or forecasts.
The BoE this month forecast that by the third quarter of 2025, the most recent forecast interval, the UK financial system can be 0.8 per cent smaller than earlier than the pandemic.
It’s because the central financial institution expects the financial system to enter a protracted recession from the top of this 12 months because of inflation, which it forecasts to reach 13% in the autumn. However its estimates had been primarily based on stronger progress charges in every quarter of 2020 than the revised ones.
The ONS now forecasts that the financial system fell 21 per cent within the second quarter of 2020, relatively than by 19.4 per cent as estimated beforehand. It additionally revealed that the GDP contraction was marginally bigger within the first three months and the restoration weaker within the third and fourth quarters of 2020.
The revised knowledge confirmed the well being sector carried out worse than beforehand calculated. Retailers and wholesalers additionally bought lower than initially thought throughout the pandemic. In the meantime, manufacturing output is now estimated to have notched up 0.1 per cent, revised up from a earlier 8.9 per cent fall.
Nevertheless, Martin Beck, chief financial adviser to the EY ITEM Membership, warned that it is likely to be too early to guage the standing of the financial system because the ONS had but to calculate the implications for 2021 and 2022.
“Ultimately, the ONS is more likely to say that whereas the downturn was deeper in 2020, the restoration afterwards was stronger, primarily conserving issues in the identical place as earlier than,” he added.
