With prices soaring, interest rates rising and the cost of living crisis growing more acute by the day, we could do with some more positive news: and this morning’s GDP update has played a small part in providing it.
Despite suffering the largest economic contraction in 300 years in 2020 – and taking the biggest economic hit in the G7 – Britain had the fastest growing economy in the G7 last year, boosting its GDP by 7.5 per cent.
It’s still a mixed story: looking at where the UK economy is now compared with pre-pandemic levels, it ranks average within the G7. But with one of the steepest hills to climb back to recovery, the UK’s relatively fast growth enabled the economy to get there several months before it was forecast to do so.
Crucially, December’s Covid scare didn’t drop the UK back below recovery levels. It’s hard to craft any long-term narrative around a monthly set of GDP figures, but December’s update was more important than most as it shines a light on how the UK economy handled the wave of Omicron that hit the country leading up to Christmas. Britain’s businesses and consumer confidence remained more robust than expected: GDP dipped by 0.2 per cent, notably less than the economic consensus of 0.5 per cent.
This means that while the economy did take a slight hit at the end of last year, it did not fall back below pre-pandemic levels. Britain can still boast that it made a full economic recovery – and hopefully recoup December’s losses fairly quickly, given how quickly fears about Omicron’s severity were put to bed.
Unsurprisingly, it was a fall in services – of roughly 0.5 per cent – that led to December’s GDP dip, with accommodation and food services taking a painful 9.2 per cent hit. The timing could not have been worse for the hospitality sector (which relies on the lead-up to Christmas for extra custom) to tide businesses over during the slower winter months. The question for those industries is whether that activity will have simply been displaced, meaning customers will show up at a delayed date – or axed altogether.
There are tough economic times ahead, with energy prices going through the roof and tax hikes around the corner. But despite the crunches to come, the economy remains in decent health. But that can’t be taken for granted: especially as more forces (some market, some interventionist) combine to weigh it down.
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