Chancellor of the Exchequer Rishi Sunak has today revealed data showing a 2.9% drop in Gross Domestic Product (GDP) during January – as the country went into its third national lockdown.
Current Office for Budget Responsibility (OBR) forecasts have GDP dropping 3.8% in Q1 2021 before growing 3.9% in Q2, should the vaccine rollout continue to be a success.
Alongside this announcement, it was revealed that exports of goods fell by £5.3bn in January 2021, and imports fell by £8.9bn.
In total, the UK economy is 9% smaller than it was before the start of the coronavirus pandemic.
In a statement, Sunak said: “Today’s figures highlight the impact the pandemic continued to have on our economy at the start of the year as we tackled the new variant of the virus – and I know this is a cause of concern for many.”
Deputy National Statistician for Economic Statistics at the Office for National Statistics, Jonathan Athow said: “The economy took a notable hit in January, albeit smaller than some expected, with retail, restaurants, schools and hairdressers all affected by the latest lockdown. Manufacturing also saw its first decline since April, with car manufacturing falling significantly. However, increases in health services from both vaccine rollout and increased testing partially offset the declines in other industries.”
In response to the announcement, Anneliese Dodds, Labour’s shadow chancellor, said: “Today’s figures confirm that under the Conservatives we’ve had the worst economic crisis of any major economy. Rather than securing the recovery, Rishi Sunak’s budget last week risked weakening it through a combination of pay cuts and tax rises, and a looming cut to social security just as unemployment is set to spike.”
Ian Warwick, Managing Partner at Deepbridge Capital, said: “The numbers reflect the UK’s difficult start to the year, amidst ongoing Brexit and Covid uncertainty. However, there are now clear glimmers of light at the end of what has been a long journey. The UK has already administered more than 23 million coronavirus vaccinations and the number of daily infections is falling. The yield of UK gilts has also started to rise which, has edged the economy further away from negative interest rates while the Government has worked hard, in an incredibly difficult environment, to create a capital lifeline to many businesses. With any period of economic recovery, it is agile companies which tend to lead the way. The UK continues to be a leader in the start-up and scale-up ecosystem and this will be increasingly important over the months and years ahead. As well as the Covid-specific measures introduced by the Chancellor last week, initiatives such as the Enterprise Investment Scheme (EIS) will continue to be vitally important in empowering growth in the UK. Given the economic impact of the global Coronavirus pandemic, it is remarkable that we have such buoyant OBR forecasts for the coming years.
“We fully expect that the innovative technology and life sciences companies that we work with will be at the forefront of this recovery. Entrepreneurs and scale-up businesses will lead the way for growth and 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 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: “Activity fell in January as widely expected, with much of the UK entering some form of lockdown at the start of the year. However, the decline was notably smaller than the first lockdown in Spring 2020, demonstrating the growing ability of businesses and households to adapt to greater restrictions on mobility
“Nonetheless, a year of repeated restrictions have taken their toll on growth, jobs, costs and wellbeing. There are reasons for optimism, with vaccine rollout proceeding at pace, and further financial support in last week’s Budget providing a bridge for firms to get to the other side.
“As we look towards recovery, the Government must now have a laser-like focus on the UK’s longer-term competitiveness by prioritising measures which stimulate jobs and skills growth, fulfil levelling-up ambitions and accelerate moves towards net zero.”