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UK economy shrank 2.9 per cent in January as third lockdown ravished trade

Monthly GDP fell by 2.9 per cent in January as a fresh national lockdown took hold of the UK economy, according to new ONS data.

The January figure, which was 9 per cent below its February 2020 level, was driven by a decline of 3.5 per cent in services, the Office for National Statistics said.

This was 10.2 per cent below its February 2020 level, representing the heavy impact of government Covid restrictions.

Monthly production fell by 1.5 per cent throughout the month, five percent below its pre-pandemic level.

Meanwhile, manufacturing and construction edged down 2.3 per cent and 0.9 per cent respectively, compared to February 2020 levels of 5.7 per cent and 2.6 per cent.

Falls in consumer-facing industries and education drove a contraction of 3.5 per cent in the services sector.

Britain’s economy is likely to shrink four per cent in the first quarter of 2021 due to lockdown disruptions and post-Brexit trade rules, the Bank of England said last month.

Jonathan Athow, an Office for National Statistics statistician, said: “The economy took a notable hit in January, albeit smaller than some expected, with retail, restaurants, schools and hairdressers all affected by the latest lockdown.

“Manufacturing also saw its first decline since April with car manufacturing falling significantly.

“However, increases in health services from both vaccine rollout and increased testing partially offset the declines in other industries.”

Alpesh Paleja, CBI Lead Economist, said: “Activity fell in January as widely expected, with much of the UK entering some form of lockdown at the start of the year. However, the decline was notably smaller than the first lockdown in Spring 2020, demonstrating the growing ability of businesses and households to adapt to greater restrictions on mobility.

“Nonetheless, a year of repeated restrictions have taken their toll on growth, jobs, costs and wellbeing. There are reasons for optimism, with vaccine rollout proceeding at pace, and further financial support in last week’s Budget providing a bridge for firms to get to the other side.

“As we look towards recovery, the Government must now have a laser-like focus on the UK’s longer-term competitiveness by prioritising measures which stimulate jobs and skills growth, fulfil levelling-up ambitions and accelerate moves towards net zero.”

Ulas Akincilar, Head of Trading at the online trading provider, INFINOX, added: “The UK economy may look like a punchdrunk boxer hanging off the ropes, but the blows are doing less damage each time.

“January’s sharp decline in output would be painful at any time. But compared to the collapse triggered by the first nationwide lockdown, this latest contraction is modest and far less than feared.

“The crucial question is whether the apparent resilience is because the economy is tougher than it was a year ago, or simply because it has shrunk so far already there is less scope for further falls.

“Certainly there is a mountain to climb to get things back to their pre-COVID levels. January’s contraction means that mountain just got higher. The economy is still 9% smaller than it was last February, and the mighty services sector is flailing.

“Last week the OBR revised down its growth forecast for the UK – predicting GDP expansion of just 4% in 2021. That bearishness now looks well placed.

“But the road map out of lockdown, and the success of the vaccination programme, are steadily firing up sentiment. As the lockdown restrictions are eased, that strengthening sentiment should translate into spending and a steady return to growth.”

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