British economy suffers worst annual slump since the Great Frost of 1709

The British economy suffered its largest annual contraction since the Great Frost of 1709, as the coronavirus pandemic ravaged economic activity.

The Office for National Statistics said gross domestic product (GDP) fell by 9.9% in 2020 as no sector of the economy was left unscathed by lockdowns and plummeting demand during the pandemic. It was the biggest fall in annual GDP since the Great Frost of 1709, when the economy shrank by 13%.

That was when Europe's harshest winter in 500 years caused widespread death and destruction.

"This time it`s a pandemic to blame whereas back then, it was a Great Frost, which saw ice in the North Sea, and the War of Spanish Succession ... which was doing the damage," wrote Societe Generale strategist Kit Juckes in a research note on Friday as quoted by CNN.

According to the Office for National Statistics, there were some signs of improvement in the final months of 2020, with GDP estimated to have increased by 1 per cent in the fourth quarter, following record growth in the third quarter. But there were big swings in output between October and December, largely tracking the level of restrictions imposed to contain the coronavirus, CNN reported. The UK suffered one of "the worst recessions" among major economies last year. Germany, for example, held up better in the pandemic than it did during the global financial crisis. 

Provisional estimates suggest Europe`s biggest economy contracted by 5 per cent last year. EU GDP, meanwhile, is expected to have shrunk 6.4 per cent, according to Eurostat. "Today`s figures show that the economy has experienced a serious shock as a result of the pandemic, which has been felt by countries around the world," UK Finance Minister Rishi Sunak said in a statement as quoted by CNN.

"While there are some positive signs of the economy`s resilience over the winter, we know that the current lockdown continues to have a significant impact on many people and businesses," it added. The new national lockdown, which was imposed on January 5 in the country, is expected to hit the economy hard in the first quarter of 2021, reversing the return to growth in the fourth quarter of 2020.

"It seems that a double dip [recession] was merely delayed rather than avoided outright," Sam Miley, an economist at the London-based Centre for Economics and Business Research said in a note on Friday. Disruption to EU-UK trade following the end of the Brexit transition period on December 31 is "also weighing on activity.

"CNN further reported that British exporters have struggled to get their products into Europe due to border delays and glitches in new customs systems. Companies selling fresh produce, such as live shellfish and meat, have in some cases had to discard their products as a result. Even once the dust settles, new trading arrangements are expected to add additional costs to UK companies, which rely on Europe for a large portion of their imports and exports.

According to a survey published on Thursday by the Financial Conduct Authority (FCA), the coronavirus pandemic has left more than a quarter of British adults financially vulnerable, with too much debt or not enough savings to cope with a "negative life event" such as redundancy, loss of working hours, or ill health. Citing the survey, the news outlet reported that nearly 40 per cent of British adults suffered financially as a consequence of the pandemic, with younger workers, Black people and the self-employed among the hardest hit.

According to Bank of England chief economist Andy Haldane, who pointed to high savings rates among UK households in an opinion piece published in a British media outlet on Thursday, said that half of adults in the FCA survey said the pandemic had not disturbed their finances, while some 15 per cent of adults were financially better off. 

That could lay the foundation for a savings-led boost to demand."The rapid rollout of the vaccination programme across the UK means a decisive corner has been turned in the battle against Covid," he said as reported by CNN quoting The Daily Mail."A decisive corner is about to be turned for the economy too, with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring," he added.

(With inputs from agencies)