LONDON (Reuters) – Britain’s economy shrank less than feared in January, when the country returned to a coronavirus blockade, but trade with the European Union was hit as new post-Brexit rules began.
Gross domestic product was 2.9% lower than in December, the Office for National Statistics said.
Economists surveyed by Reuters expected a 4.9% contraction and government bond prices fell as investors took the data as a sign that the Bank of England was less likely to pump more stimulus into the economy.
Britain suffered the worst economic crisis in three centuries last year, when it fell by 10%. It was also hit by the largest death toll in Europe, COVID-19, by more than 125,000 people.
But the country is heading ahead of vaccinations, and after Friday’s figures, economists said they expected the economy to shrink by 2% in the first quarter of 2021, half of the BoE’s predicted success only last month.
Many companies are learning to deal with blockages, including retailers that have stepped up their online shopping operations and service companies that have tried to help workers do their homework.
Samuel Tombs, with Pantheon Macroeconomics, predicted a 5% return to growth in the second quarter “which would reduce the chances of the Monetary Policy Committee reducing the bank rate this year.”
The BoE looks to keep its stimulus programs on hold next Thursday.
ONS figures also showed that exports and imports from the UK to the EU fell the most from records, although there was a delay in collecting some of the data and there were signs of a recovery by the end of January.
Exports of goods to the EU, excluding non-monetary gold and other precious metals, fell by 40.7%. Imports decreased by 28.8%.
Many companies have brought in imports to avoid disrupting the border since January 1, and global trade flows have been affected by the coronavirus pandemic.
HIT SERVICES
Overall GDP figures have been hit hard by the impact of social distancing rules on the huge service sector in the UK.
“The economy was remarkably successful in January, although lower than some expected, with retail, restaurants, schools and hairdressers all affected by the latest blockade,” said Jonathan Athow, an ONS statistician.
Production fell for the first time since April, and car production fell sharply.
But ING economist James Smith pointed to GDP growth in the UK health policy response to COVID-19: “What really stands out is health spending, where the intensification of government testing and monitoring schemes and vaccination programs have added 0.9% of GDP figures alone. “
The economy remained 9% lower than in February last year before the pandemic hit.
Prime Minister Boris Johnson intends to gradually ease the restrictions on coronavirus in England before lifting most of them by the end of June.
Growth over the next few months will also receive a boost from Finance Minister Rishi Sunak’s announcement last week that it will pump another £ 65 billion ($ 90.6 billion) into the economy, including an expansion of its scheme. job protection.
The ONS said production of services fell by 3.5% in January since December. The Reuters poll showed a 5.4% contraction.
Reporting by William Schomberg; Edited by Alistair Smout, Philippa Fletcher and John Stonestreet