UK economy shrinks by a record 9.9% over the last year

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According to data released today by the Office for National Statistics (ONS), the UK economy shrank by a record 9.9% over the last year – as coronavirus restrictions and lockdowns severely impacted almost every sector.

The contraction in the economy is more than double the previous largest annual fall on record with ONS.

Despite the fall, there was cause for optimism, as December saw the economy grow 1.2% – and from October to December, the economy grew in total by 1%.

ONS Deputy National Statistician, Jonathan Athow, said: “An increase in COVID-19 testing and tracing also boosted output. The economy continued to grow in the fourth quarter as a whole, despite the additional lockdown restrictions in November.”

Chancellor Rishi Sunak responded to the figures: “Today’s figures show that the economy has experienced a serious shock as a result of the pandemic, which has been felt by countries around the world. 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. That’s why my focus remains fixed on doing everything we can to protect jobs, businesses and livelihoods.”

Industry reaction

Douglas Grant, Director of Conister, part of AIM listed Manx Financial Group, said: “Rises in GDP over a quarter are usually a sign of a healthy, strengthening and growing economy. Unfortunately this nominal climb in output, while better than expected, does not reflect the dire situation that many businesses are facing. Earlier this week the Resolution Foundation warned that the UK Government has risked creating a legion of zombie companies and we must avoid amplifying this status of many of the UK’s SMEs, living off an ever-increasing debt pile, at all costs.

“While, the BBLS and CBILS played instrumental roles in keeping many resilient SMEs alive and acted as important triage systems to identify and support viable businesses that needed credit, we must now accept that we have passed this triage phase and instead it is imperative that we identify, prioritise and protect our most resilient individual business sectors and segments.”

Ian Warwick, Managing Partner at Deepbridge Capital, said: “A quarterly increase of 1% in GDP would ordinarily represent decent growth before the pandemic but in actuality it shows a modest change in output as the UK economy desperately tries to catch up. The numbers are a result of the UK’s inconsistent lockdowns during the turbulent autumn months and Brexit uncertainty. The Government has worked hard in an incredibly difficult environment to create a capital lifeline to many businesses via the BBLS and CBILS, as well as long-term support for growth-focused companies via the likes of the Enterprise Investment Scheme, but now we would urge that there needs to be even greater support – both via financial and via sustainable growth initiatives.

“Agile companies, which continue to survive, and in some cases, thrive, provide a product or service which has a genuine medium to long term solution to a recognised problem. They will continue to develop and grow but require capital to do so.

“The types of companies we support, being innovative technology and life sciences companies, are by their very nature expected to be highly innovative and are therefore are generally focussed on addressing long-term market needs. As we witnessed last year, we believe there should continue to be a genuine need for the research, development and/or products such companies are producing.  Of course, the life sciences sector has perhaps never seen greater focus and there continues to be great UK innovations in this space.

“The biggest problem for growing early-stage companies may be access to funding, but we expect UK investors and financial advisers to continue to utilise the Enterprise Investment Scheme (EIS) to support such great companies whilst allowing investors to benefit from the generous potential tax reliefs on offer. EIS has never been a more important Government tool for supporting the UK economy and it has never been more vital for investors to understand the potential benefits.”

Alpesh Paleja, CBI Lead Economist, said: “The UK economy grew slightly towards the end of the last year, as a second lockdown in November was partly offset by a pick-up in GDP over December. But with restrictions tightening again in the New Year, we’ll likely see further dips in activity.

“Getting the pandemic under control is critical to our recovery, and speedy rollout of vaccines gives us some hope. But until this ends the stop-start cycle of lockdowns, businesses will need support to continue in parallel with restrictions.

“The Budget comes at a critical time for the UK. Extending the furlough scheme through to summer and continuing the business rates holiday for another three months will help safeguard jobs, livelihoods and communities across the country.”

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