The British economy last year expanded at the fastest pace since World War II after suffering a milder hit than expected two months ago.
The 7.5 percent expansion was the largest since 1941 and made the UK the fastest-growing advanced economy last year. GDP fell 0.2 percent in December as the spread of the Omicron variant of SARS-CoV-2 kept people at home.
The figures should be welcomed by British Prime Minister Boris Johnson, who is grappling with a brutal cost-of-living crisis and facing calls to resign over alleged rule-breaking parties when the country was in lockdown.
The expansion are also likely to keep the Bank of England focused on efforts to curb surging inflation, with more interest-rate increases likely in the next few months.
After suffering a deeper recession than its major peers during the COVID-19 pandemic, contracting 9.4 percent in 2020, the UK has enjoyed a stronger recovery, aided by billions of British pounds in government aid to support jobs and firms through the crisis.
The economy is forecast to outperform other G7 nations once again this year.
Thanks to “our package of support and making the right calls at the right time, the economy has been remarkably resilient,” British Chancellor of the Exchequer Rishi Sunak said.
However, the UK has yet to return to its pre-pandemic levels of output on a quarterly basis, a milestone already surpassed by the US and France.
The fall in GDP in December was entirely due to a 0.5 percent contraction in the services sector, where hospitality venues were hit by mass cancellations in the run-up to Christmas, while retailers saw a collapse in sales after the government imposed curbs to contain the spread of Omicron.
Businesses across the economy were also hampered by widespread absences linked to the virus and continued supply-chain disruptions. On the plus side, healthcare output rose, driven by the rollout of vaccine booster shots.
The loss of output in December last year limited growth in the fourth quarter to just 1 percent, leaving GDP 0.4 percent below its level at the end of 2019. With Omicron restrictions extending into the new year, last month’s figures are also expected to be weak.
KPMG UK lead economist Yael Selfin said that the squeeze on household incomes from rising prices and planned tax rises could see economic activity “disappoint over the coming months.”
Selfin forecast GDP growth this year of 3.7 percent.
“The reality is the way the government runs our economy is trapping us in a high-tax, low-growth cycle,” said British Member of Parliament Pat McFadden, who speaks on finance issues for the opposition Labour Party. “The latest Bank of England forecast suggests that growth will slow to a crawl next year. That would be the slowest growth of any G7 economy.”
Bank of England forecasts published on Thursday last week showed the economy stagnating in the first quarter, but rebounding strongly in the following three months to return to its pre-pandemic size.
The bank has hiked rates at its two previous meetings, taking the benchmark to 0.5 percent, and markets are pricing in a rapid series of further moves this year.
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