The British economy shrank more last year than any of the G-7s, which according to the Bank of England is the largest economic downturn in more than 300 years.
What went wrong? Closures have caused the UK greater pain than other members of the Group of Seven advanced economies, as it is particularly dependent on consumer spending, which has evaporated amid one of the deadliest Covid-19 outbreaks in Europe. The economy was already weak after four years of negotiations over Britain’s exit from the European Union, during which business investment slumped and households held back spending.
This is the starting point for Britain’s new relationship with the EU, which began on 1 January with a loose free trade agreement. Earlier this month, Prime Minister Boris Johnson announced another nationwide exclusion to fight a new, more contagious variant of the coronavirus. This puts the UK economy on course to shrink again in the first quarter of the year, when businesses also have to make new European trade arrangements.
Growth in the UK was already weak in the pandemic due to poor business investment, poor productivity and low growth in revenue. After the coronavirus started, the British economy shrank by more than its peers in the G-7 in the first nine months of the year. Figures for the last quarter, which appear on February 12, are expected to show that the economy has shrunk again.
The UK has taken a bigger hit, as about 13% of its annual gross domestic product comes from spending on leisure and culture, and in restaurants and hotels, a larger share than any other G-7 country. Businesses that relied on direct contact with consumers – pubs and restaurants, sporting events, hotels and theaters, cinemas and museums – were hampered when social distance became the norm and when the spread of the virus forced them to close. The current lock, which was introduced in mid-February, includes schools and non-essential shops, and people have been told to leave the house only if necessary.