UK economy grew 7.5% in 2021, fastest since second world war – business live

The UK recorded the fastest growth in the G7 last year, as the economy rebounded from the 2020 slump.

The 7.5% increase in GDP during 2021 is the fastest growth seen among the G7 countries.

It beats the US (5.7% growth), France (+7%), Germany (+2.7%), and Italy (+6.5%) as well as the EU (+5.2%), and likely to beat Canada and Japan who have yet to release 2021 GDP.

But, the UK is recovering from a lower base, having contracted 9.4% in 2020. That was a steeper downturn than other G7 members (although Spain, not in the G7, shrank over 10%).

As this chart shows:

Overall, the UK is in the ‘middle of the pack’ in the race to recover from the pandemic, says Darren Morgan, ONS director of economic statistics.

Morgan told Radio 4’s Today Programme that:

If you look at how the UK economy grew in 2021, compared with 2020, then yes, the 7.5% we published this morning means the UK is the fastest growing economy in the G7.

But it’s important to put that into a little bit of context, Morgan added:

The growth in 2021 comes from a low base in 2020 when the UK economy fell sharply.

If you look at where the UK economy is now, compared to its pre-pandemic level, which I know a lot of people do for a broader picture of the economy, the UK is middle of the pack compared with the G7.

With the US, Canadian and French economies above the UK’s, but the UK is above Italy, Germany and Japan.

The United States, France and Canada are all above their pre-coronavirus level of GDP on a quarterly basis, while the UK was still 0.4% below its level of Q4 2019 in Q4 2021 (but level with February’s GDP level in December).

Much of the UK’s growth in 2021 came in the spring, after the winter lockdown hit the economy hard.

GDP shrank by 1.2% in Q1 2021, as England entered its toughest lockdown since the start of the pandemic. Activity fell sharply in January, but then recovered in March as schools reopened, and manufacturing and construction picked up.

GDP then jumped by 5.6% in April-June as restrictions were relaxed and people flocked back to shops, offices and hospitality venues.

But after that bounceback faded, growth slipped back to 1% in both Q3 and Q4 (as we learned this morning).

Economist Simon French of Panmure Gordon points out that UK growth was “mid-range” in the second half of last year.

Resolution’s James Smith also highlights that the economy was bouncing back from a weak 2020:

Pat McFadden MP, Labour’s Shadow Chief Secretary to the Treasury, has warned that the UK recovery is expected to slow this year:

“The reality is the way the Government runs our economy is trapping us in a high tax, low growth cycle.

“Despite government bluster, with their current plans our position is not expected to improve. The latest Bank of England forecast suggests that growth will slow to a crawl next year. That would be the slowest growth of any G7 economy.

“Rising taxes, rising prices, and a squeeze on wages and living standards sit squarely on the shoulders of the Conservatives.

“Labour has a plan to build a stronger economy, based on an understanding that Britain’s prosperity is found in the effort and talent of tens of millions of ordinary people, as well as backing the sectors that will help drive the industries of the future.”

Chancellor of the Exchequer, Rishi Sunak says the UK economy has been ‘remarkably resilient’:

“Thanks to our £400bn package of support and making the right calls at the right time, the economy has been remarkably resilient; with the UK seeing the fastest growth in the G7 last year and GDP remaining at pre-pandemic levels in December.

“I’m proud of the resolve the whole country has demonstrated, and proud of our incredible vaccine programme which has allowed the economy to stay open.

“We’re continuing to help the economy rebuild through our Plan for Jobs, boost for business investment and support for households with the cost of living.”

The UK recorded the fastest growth in the G7 last year, as the economy rebounded from the 2020 slump.

The 7.5% increase in GDP during 2021 is the fastest growth seen among the G7 countries.

It beats the US (5.7% growth), France (+7%), Germany (+2.7%), and Italy (+6.5%) as well as the EU (+5.2%), and likely to beat Canada and Japan who have yet to release 2021 GDP.

But, the UK is recovering from a lower base, having contracted 9.4% in 2020. That was a steeper downturn than other G7 members (although Spain, not in the G7, shrank over 10%).

As this chart shows:

Overall, the UK is in the ‘middle of the pack’ in the race to recover from the pandemic, says Darren Morgan, ONS director of economic statistics.

Morgan told Radio 4’s Today Programme that:

If you look at how the UK economy grew in 2021, compared with 2020, then yes, the 7.5% we published this morning means the UK is the fastest growing economy in the G7.

But it’s important to put that into a little bit of context, Morgan added:

The growth in 2021 comes from a low base in 2020 when the UK economy fell sharply.

If you look at where the UK economy is now, compared to its pre-pandemic level, which I know a lot of people do for a broader picture of the economy, the UK is middle of the pack compared with the G7.

With the US, Canadian and French economies above the UK’s, but the UK is above Italy, Germany and Japan.

The United States, France and Canada are all above their pre-coronavirus level of GDP on a quarterly basis, while the UK was still 0.4% below its level of Q4 2019 in Q4 2021 (but level with February’s GDP level in December).

The UK economy grew by 7.5% during 2021 as it recovered from the 2020 slump caused by the pandemic.

That’s the fastest growth since the second world war, led by a strong rebound last spring when lockdown restrictions were lifted, despite the disruption caused by Omicron in December.

But, it follows a 9.4% fall in GDP in 2020, when Covid-19 drove the economy into a steep slump.

Paul Dales of Capital Economics says:

In 2021 as a whole, GDP rose by an impressive 7.5%, but that needs to be put in context against the 9.4% fall in 2020.

It’s possible that GDP fell in January as that’s when Omicron caused the most people to stay off work and self-isolate. But equally, the timely indicators suggest that activity began to recover from the middle of the month.

Either way, a 2% fall in real household disposable incomes this year (due to higher inflation and taxes) will restrain GDP growth from April. With inflation soaring, we doubt this will prevent the Bank of England from raising interest rates from 0.50% to 1.25% this year and perhaps to 2.00% next year.

Darren Morgan, director of Economic Statistics at the ONS, says GDP fell back slightly in December as the Omicron wave hit.

Despite December’s setback, GDP grew robustly across the fourth quarter as a whole with the NHS (National Health Service), couriers and employment agencies all helping to support the economy.

Despite the disruption caused by Omicron in December, the UK economy kept growing in the final quarter of 2021.

UK gross domestic product rose by 1.0% in October-December, the Office for National Statistics reports, following a downwardly revised 1.0% increase in Q3.

The ONS says:

The largest contributors to this quarterly increase were from human health and social work activities driven by increased GP visits at the start of the quarter, and a large increase in coronavirus (COVID-19) testing and tracing activities and the extension of the vaccination programme.

On a quarterly basis, that leaves UK GDP 0.4% below its level in Q4 2019 before the pandemic (although it is level on a monthly basis).

This chart shows how UK GDP dipped by 0.2% in December, after 0.7% growth in November (revised down from 0.9% growth first reported).

The UK’s service sector bore the brunt of the Omicron hit, with output falling by 0.5% in December.

Output in consumer-facing services fell by 3.0% in the month, mainly driven by a 3.7% fall in retail trade as consumers avoided the shops.

Production rose by 0.3% during the month, and construction increased by 2.0%.

That leaves services and construction both above their pre-coronavirus levels, by 0.5% and 0.3% respectively, while production has yet to recover (still 2.6% below)

Newsflash: The UK economy shrank by 0.2% in December as the Omicron variant weighed on the recovery.

That leaves the economy back at its level in February 2020, before the pandemic, after it had exceeded its pre-Covid levels in November.

It’s a smaller contraction than economists had feared, though.

Q4 had been shaping up to be a reasonably decent quarter until the Omicron wave broke over the UK economy in December, says Michael Hewson of CMC Markets.

The big question is how much of the November rebound in manufacturing and construction carried over into December, and whether it was enough to offset the collapse in retail sales which fell by -3.6%, more than wiping out the collective 2.7% gain seen in October and November.

Expectations for the UK economy come in slightly below the 1.1% gain seen in Q3, with a rebound in exports and imports also likely to be seen, as consumers here in the UK and across Europe shop early for Christmas.

Industrial and manufacturing production is expected to slow from the strong performance seen in November, with forecasts of about 0.1%.

We’ll find out at 7am….

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we learn how the UK economy fared in December, as Omicron put the brakes on the recovery.

Economists predict that UK GDP could have fallen during the month, perhaps by 0.6%, after ministers introduced restrictions to slow the highly infectious variant.

Hospitality firms were hit by cancellations, and retail sales fell as people avoided the shops. Millions of employees worked from home, and many were off work due to sickness, or self-isolating, causing staff shortages.

Before Omicron hit, the UK economy had just recovered to its pre-pandemic levels in November.

For the full quarter of October-December, gross domestic product for the fourth quarter is expected to grow a little over 1%, similar to the 1.1% growth in July-September.

We’ll also find out how fast the UK economy grew during the full year, as it recovered from its 2020 slump which saw GDP shrink almost 10%.

Elsewhere today, financial markets are heading for losses, after US inflation surged to a 40-year high of 7.5%.

Wall Street fell after one Federal Reserve policymaker, St. Louis Federal Reserve President James Bullard, said he has become “dramatically” more hawkish.

He wants a full percentage point of interest rate hikes over the next three policy meetings to tame inflation – which has fuelled expectations that the Fed could hike rates by 50 basis points in March.

The FTSE 100 is seen dropping around 1%, after hitting a two-year high last night.

The agenda

• 7am GMT: UK GDP report for December
• 7am GMT: UK GDP report for Q4 2021
• 7am GMT: UK trade report for December
• 9am GMT: IEA monthly oil report
• 10.30am GMT: Bank of Russia’s interest rate decision
• 3pm GMT: University of Michigan survey of US consumer sentiment