(qlmbusinessnews.com via bbc.co.uk – – Wed, 12th May 2021) London, Uk – –
The UK economy shrank by 1.5% in the first three months of 2021, but gathered speed in March as lockdown restrictions began to ease, official figures show.
The reopening of schools and strong retail spending helped the economy grow 2.1% in March, its fastest monthly growth since last August.
But the economy is still 8.7% smaller than it was before the pandemic.
However, March marked a possible turning point, economists suggested.
Tej Parikh, chief economist at the Institute of Directors, predicted the UK economy was now on course for a bumper bounce-back this year.
“The first quarter should mark the low point for the economy in 2021,” he said. “The lockdown, and added costs of navigating new trading terms with the EU, limited many businesses' trading activities at the start of the year.”
Chancellor Rishi Sunak told the BBC the economy was “getting back on track”.
“Despite a difficult start to this year, economic growth in March is a promising sign of things to come,” he added.
Earlier this month, the Bank of England said it expected the UK economy to enjoy its fastest growth in more than 70 years this year as restrictions are lifted.
But Pantheon Macroeconomics economist Samuel Tombs pointed out that the UK's economic growth was still the slowest of the Group of Seven (G7) rich countries, for the fourth quarter in a row.
Mr Tombs said GDP looked on course to grow by 5% between April and June “which should mean that the UK finally hands over the wooden spoon to another G7 economy”.
Official trade figures published at the same time showed a shift away from EU countries since Brexit.
“Imports from Europe remained sluggish in the first three months of the year, being outstripped by non-EU imports for the first time on record,” said Mr Morgan.
The ONS said the total trade deficit, excluding precious metals, narrowed by £8.4bn to £1.4bn.
The vaccine rollout, the extension of support measures at the Budget, and the roadmap to reopen the economy has helped build business confidence for the months ahead, analysts said.
Suren Thiru, head of economics at the British Chambers of Commerce, said the decline in economic output in the first quarter largely reflected the squeeze on activity from coronavirus restrictions, which was partly offset by growing business resilience to those restrictions and a monthly boost from the reopening of schools in March.
“The first quarter decline should be followed by a robust rebound in the second quarter as the effects of the release of pent-up demand, as restrictions ease and the strong vaccine rollout, are fully felt,” he said.
But he warned that the longer-term economic damage caused by coronavirus may mean the recovery is slower than many, including the Bank of England, currently predict.
Analysis: Faisal Islam
In ordinary times a 1.5% quarterly hit would be considered a considerable economic fall. In context of a further national shutdown, it shows some resilience in the UK economy.
Businesses, particularly manufacturing and construction, were beginning to work out how to cope with pandemic restrictions. The good news is that by the end of the quarter the rebound was starting.
Chancellor Rishi Sunak is not getting carried away with euphoria about the fastest growth in decades. The Treasury is well aware that this is mostly the arithmetic consequence of the bounce back from a sharp hit in 2020.
The ONS showed that the economic hole in the UK caused by the pandemic still does not compare favourably with other major economies, with the US, for example, having recovered all lost output.
Mr Sunak points to the much better than expected unemployment figures as the result of the furlough scheme. There is still uncertainty about how the global economy will respond to new waves of the pandemic. The chancellor is not changing the plan for tax rises on business.