The UK economy has shrunk more than any of the G-7s last year, saying the Bank of England will be the country’s biggest economic crisis in 300 years.
What went wrong? The closures have caused more pain for the UK than other members of the Group of Seven Advanced Economies, in part because it is particularly dependent on consumer spending, which has evaporated amid one of Europe’s deadliest Covid-19 outbreaks. . The economy was already weak after four years of negotiations on Britain’s exit from the European Union, during which time investment in business declined and households withheld spending.
This is the starting point for Britain’s new relationship with the EU, which began on 1 January with a free trade agreement. Earlier this month, Prime Minister Boris Johnson announced another blockade nationwide to combat a new, more contagious variant of coronavirus. This puts the UK economy on the verge of shrinking again in the first quarter of the year, when companies also have to cope with new European trade agreements.
Growth in the UK was already weak at the time of the pandemic, due to poor business investment, poor productivity and low revenue growth. Once the coronavirus set in, the British economy shrank by more than its G-7 counterparts in the first nine months of the year. The figures for the last quarter, which is to be February 12, should show the contracted economy again.
The UK has had a greater impact, as about 13% of its annual gross domestic product comes from spending on leisure and culture and restaurants and hotels, a higher share than any other G-7 country. Businesses that depend on direct contact with consumers – bars and restaurants, sporting events, hotels and theaters, cinemas and museums – were confused when social distance became the norm and when the spread of the virus forced them to close. The current blockade, in effect until mid-February, closes non-essential schools and shops, and people have been told to leave home only if necessary.