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Economy set to shrink by 11pc after January ruined by Covid

The Telegraph logo The Telegraph 07/03/2021 Russell Lynch, Hannah Boland
Closed shops and restaurants © Provided by The Telegraph Closed shops and restaurants

Official figures will this week show that Britain suffered its biggest setback since April 2020 after the third lockdown crushed growth and forced thousands of companies to shut.

Forecasters are braced for a 5pc slide in January output in estimates this week – the worst performance since the first full month of the first lockdown when GDP plunged a record 18.3pc.

The latest dismal statistics will leave the economy some 11pc below its pre-pandemic heights, equivalent to more than £200bn of lost output.

The forecasts underline the urgency of the Chancellor’s latest £65bn cash injection into support schemes unveiled in the Budget, through the extension of taxpayer-funded furlough until September and a raft of extra grants for businesses. An estimated 6m workers are currently furloughed, with shops, pubs and restaurants all closed and most offices standing empty.

Official figures have already shown that retail sales slid almost 9pc in January, as the shuttering of stores pushed the share of online shopping to a record 35.2pc. George Buckley, chief UK economist at Nomura, predicted an even sharper 7pc fall in output. He highlighted Office for National Statistics surveys showing a similar number of firms had paused trading as in June last year.

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Mr Buckley added: “The closure of the schools will also be a factor as some people would not have been able to work. This lockdown is much tougher than the one we had in November.”

The figures will come after a torrid year for the UK economy, which in 2020 suffered its worst annual fall in GDP since the Great Frost of 1709 brought economic activity to a halt.

The economy contracted by 9.9pc in 2020, significantly more than during the financial crisis, which knocked GDP by 4.3pc in 2009. The drop was far worse than recessions in the Seventies, Eighties and Nineties, which led to contractions of around 3pc.

The UK has been particularly hard hit compared to other major European nations, with only Spain recording a larger drop in GDP. In France, GDP fell by 8.3pc last year. In Italy, it was down 8.9pc.

However, economists have suggested there is some cause for optimism for the UK economy over the rest of the year given world-leading vaccine rollout. Ahead of the GDP release last month, Bank of England chief economist Andy Haldane said the economy was “poised like a coiled spring”, and that “a year from now, annual growth could be in double-digits”.

Separate figures will also give the first official verdict on the impact of Britain’s trade deal with the EU, although exports are likely to have been hit harder than imports due to the phased introduction of UK checks compared to the EU. The Bank of England expects the initial disruption to knock 1pc off GDP in the first quarter.

James Smith, an economist at ING, said: “The change in trade terms is clearly causing considerable issues for firms and could get more challenging in the near-term as the UK prepares to phase in customs checks between April and July. We think this higher cost burden will hold back investment and hiring in the recovery phase.”

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