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2020 UK economy’s worst performance in over 300 years
The recovery of the UK economy has been stronger than expected, according to data released by the Office for National Statistics (ONS), demonstrating higher household savings than figures previously suggested.
The ONS said the British economy grew by 16.9% in Q3 of 2020 and 1.3% in Q4%, up from its initial forecasts of 16.1% and 1%.
Analysts are saying that the stronger than expected recovery is a signal that the UK could grow more during the current year.
However, while the ONS described a strong second half of 2020, it also said the recession during the first half of the year was more substantial than previously thought.
GDP fell by 19.5% in the second quarter of 2020, more than the initial forecast of 19%.
Over the course of the year, the UK economy shrank by 9.8%, 0.1% lower than expected by the ONS, but still the UK’s worst performance for over 300 years.
Disposable incomes held steady in 2020, up by only 0.1%, having been adjusted for inflation. The lack of opportunities to spend money due to lockdowns meant that many homes gathered savings that exceeded the ONS’s initial estimates.
Cash saved as a proportion of disposable income, otherwise known as the savings rate, rose from 14.3% in Q3 of 2020 to 16.1% in Q4.
Philip Shaw, an economist at the investment firm Investec, commented: “Our estimate of excess or pent-up savings now stands at £121bn, equivalent to close to 10% of total household consumption in cash terms last year.”
This could mean that households spending will surge from its position as the weakest sector of the economy to the strongest.
Shaw told The Guardian that he expects the third lockdown to push down GDP by 1.8% in Q1 of 2021, to be followed by a rebound that would push GDP 7.3% higher in 2021 as a whole.
The UK economy recorded among the largest contractions of all the large countries in the Organisation for Economic Cooperation and Development, with only Spain and Argentina reporting steeper falls.