LONDON (Reuters) – Britain’s economy shrank by less than feared in January when the country fell into a coronavirus lockout again, but trade with the European Union was hammered out when new rules began after Brexit.
The National Statistics Office said gross domestic product was 2.9% lower than in December.
Economists polled by Reuters expected a 4.9% contraction and the price of government bonds fell as investors saw the data as a sign that the Bank of England was less likely to stimulate more economy.
Britain suffered its worst economic downturn in three centuries last year when it shrank by 10%. It was also hit with Europe’s largest COVID-19 death toll of more than 125,000 people.
But the country is pushing ahead with vaccinations, and after Friday’s figures, economists said they expected the economy to shrink by 2% in the first quarter of 2021, half the forecast the BoE only predicted last month.
Many businesses are learning to deal with barriers, including retailers who have done their online shopping and service businesses that have tried to help workers do their work from home.
Samuel Tombs, with Pantheon Macroeconomics, predicted a second-quarter growth surge of 5%, which would increase the chances that the Monetary Policy Committee would lower the bank rate this year. “
The BoE looks set to hold its stimulus programs on Thursday.
The US figures also showed that exports and imports from Britain to the EU fell the most, although there was a delay in the collection of some data, and there were signs of a start by the end of January.
Exports of goods to the EU, excluding non-monetary gold and other precious metals, fell by 40.7%. Imports fell by 28.8%.
Many companies diverted imports from January 1 to prevent border disruption, and global trade flow was hit by the coronavirus pandemic.
SERVICES Meet
The overall GDP figures have been hit hard by the impact of social distance rules on the large sector in Britain.
“The economy suffered a striking blow in January, albeit smaller than some expected, with retail, restaurants, schools and hairdressers all affected by the latest exclusion,” said Jonathan Athow, statistician at ONS.
Manufacturing fell sharply for the first time since April with car production.
However, ING economist James Smith pointed to the increase in GDP as a result of the UK COVID-19 response to health policy: ‘What really stands out is health spending, where the increase in the government’s testing and detection scheme and vaccination programs 0.9% added to the GDP figures. alone. ”
The economy remained 9% smaller than in February last year, before the pandemic.
Prime Minister Boris Johnson plans to gradually ease England’s coronavirus restrictions before lifting most of them by the end of June.
Growth in the next few months is also likely to be boosted by Finance Minister Rishi Sunak’s announcement last week that he would pump a further £ 65bn ($ 90.6bn) into the economy, including ‘ an extension of its occupational protection scheme.
The ONS said that production of services had shrunk by 3.5% since December. The Reuters poll indicates a contraction of 5.4%.
Reporting by William Schomberg; Edited by Alistair Smout, Philippa Fletcher and John Stonestreet