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Highlights
- The UK economy recorded a GDP growth of 7.5% in 2021 after a drastic fall of 9.4% in 2020.
- The UK’s GDP has gone up by 1% in Q4 2021, same as the downwardly revised 1.0% increase in Q3.
The UK economy is on its way back to normalcy after facing huge disruptions caused by the pandemic. According to the latest official figures released by the Office for National Statistics (ONS) on 11 February, the UK economy is estimated to have grown by 7.5% in 2021, which is its fastest rate of growth since 1941.
Q4 GDP estimate
In the fourth quarter of 2021, the UK’s GDP has gone up by 1%, growing marginally below the expected 1.1%. In the third quarter also, there was a downwardly revised 1.0% increase in the GDP. The output growth in Q4 is attributed to human health and social work pursuits led by more GP visits at the beginning of the quarter. Moreover, the vaccination programme, tracing of Covid patients, and their testing also contributed to the increased output.
Household consumption was the biggest contributor to the growth in Q4, and the government spending and gross fixed capital formation increased by 1.9% and 2.2%, respectively. Additionally, the exports were up by 4.9%, while imports were down by 1.5%. Taking the entire year of 2021 into account, the 7.5% GDP growth is the highest growth figure attained by the UK since 1941, and this came after a drastic fall of 9.4% in 2020. As of now, the GDP is 0.4% short of reaching the pre-pandemic figure of Q4 2019, as per ONS.
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Impact of Omicron
The UK economy was gradually returning to its normal growth path, but as the Omicron variant of coronavirus hit the UK, the economic turbulence started off again. In November 2021, the UK was already recovering and had reached the pre-pandemic levels of growth, then Omicron emerged and halted the UK’s revival process.
Restrictions to control the spread of the virus were introduced again in December, leading to the same issues faced while dealing with the previous variants. A wide range of sectors suffered due to the pandemic-related restrictions. There were cancellations of public events and parties during the festive season, resulting in huge losses for the hospitality industry. Travel and tourism also took a hit as people were stuck at home, which in turn led to staff shortfalls across sectors.
With decent final quarter figures, the UK has rebounded strongly in 2021. But certain major factors including the rising inflation and interest rates, soaring energy bills, supply chain bottlenecks, labour shortfalls etc. may still create a lot of hurdles for the UK economy and decelerate its growth in the future as well.
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In December, the UK GDP was down due to the impact of Omicron coupled with record-high inflation levels, giving the country a taste of stagflation. As per BoE, inflation will potentially reach around 7% this spring, which may further disrupt the economy.
Stock market gives muted reaction
Just two days after the FTSE100 hit its two-year high on announcement of the scrapping of pandemic-related restrictions in the UK, the stock market was down today after the release of the GDP figures. At around 11 AM on 11 February 2022, the FTSE 100 index stood at 7,621.73 points, down by 0.68%, with London Stock Exchange Group being the biggest faller. Additionally, the FTSE 250 and FTST 350 indices were also down by 1.02% and 0.73%, respectively.
Bottomline
Despite many headwinds, the UK economy is recovering from the catastrophic impact of the pandemic. The latest GDP numbers look promising, and despite factors like rising inflation and supply chain issues, the economic performance is likely to improve in the coming quarters with the end of covid-related restrictions.
