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UK economy shrinks at fastest rate for 300 years

The Office for National Statistics (ONS) stated that gross domestic product (GDP) dropped by 9.9% in 2020 as no sector of the economy avoided financial damage by lockdowns and plunging demand during the Covid crisis. It was the biggest decrease in annual GDP since the Great Frost of 1709 when the economy shrank by 13%.

UK economy damaged by Covid

Despite severe restrictions across the country, the economy is due to avoid what could have been its first double-dip recession since the 1970s. A double-dip is when two recessions occur within a short period of time, while a recession is defined as two consecutive quarters where the economy shrinks.

The head of economics at the British Chambers of Commerce, Suren Thiru, said: “Despite avoiding a double-dip recession, with output still well below pre-pandemic levels amid confirmation that 2020 was a historically bleak year for the UK economy, there is little to cheer in the latest data.”

All four sectors tracked by the ONS saw a drop in output, the statisticians said, with the most significant drop coming in the construction sector, which shrunk by 12.5%.

Chancellor Rishi Sunak said the figures revealed the “serious shock” the pandemic has had on the economy. He also said: “At the Budget I will set out the next stage of our plan for jobs, and the support we’ll provide through the next phase of the pandemic.”

The 9.9% decrease makes it the worst year for the UK economy since records began. GDP was first measured in the aftermath of the Second World War, and the measure has never previously dropped by more than 4.1%.

Research director at the Resolution Foundation, James Smith, said: “The ability to sustainably lift lockdown restrictions without the virus caseload increasing will determine when a true recovery can begin, but the strength of that recovery will also be shaped by decisions taken at the upcoming Budget. That should include an extension, and gradual phasing out, of the furlough scheme, along with additional grants targeted at sectors most affected by continuing restrictions.”

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