The UK economy shrank more last year than any of the G-7, in what the Bank of England says will be the country’s biggest economic downturn in more than 300 years.
What went wrong? The shutdowns caused more pain in the UK than the rest of the Group of Seven advanced economies, in part because it depends especially on consumer spending, which evaporated amid one of Covid’s deadliest outbreaks in Europe. -19. The economy was already weak after four years of negotiations over Britain’s exit from the European Union, during which business investment declined and households slowed 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 national shutdown to combat a new, more contagious variant of the coronavirus. This puts the UK economy on the verge of shrinking again in the first quarter of the year, when companies also have to deal with new European trade agreements.
Growth in the UK was already weak as it entered the pandemic due to weak business investment, poor productivity and low income growth. Once the coronavirus was established, the British economy shrank more than its G-7 counterparts during the first nine months of the year. The figures for the last quarter, scheduled for February 12, are expected to show a further contraction in the economy.
The UK was more successful because around 13% of its annual gross domestic product comes from spending on recreation and culture and on restaurants and hotels, a higher share than any other G-7 country. Companies that depend on direct contact with consumers (bars and restaurants, sporting events, hotels and theaters, cinemas and museums) were reduced when social distancing became the norm and when the spread of the virus forced them to close. The current closure, set until mid-February, closes non-essential schools and shops, and people have only said to leave home only if necessary.