Retail sales return close to pre-pandemic level in online boom
Online sales boomed during lockdown, although the forced closure of high street stores damaged the retail sector overall. The total volume of retail sales has, however, recovered close to pre-pandemic levels, after falling by the most on record during the first wave. With pubs and restaurants closed and people spending less on services during lockdown, supermarket sales have surged, while DIY and gardening spending rose sharply as people spent more time at home. Clothing sales on the other hand have fallen and many physical shops in town and city centres have been pushed to the brink of collapse as their doors remained closed. More than 11,000 outlets permanently disappeared from high streets last year.
UK suffers worst recession in the G7
As well as having one of the highest coronavirus death rates in the world, the UK economy suffered the worst performance among the G7 group of wealthy nations last year, as the government entered lockdown later than other countries and then took longer to relax restrictions. Only Spain suffered a sharper decline among EU countries. The structure of the UK economy, with a greater dependence on social consumption – face-to-face spending in restaurants and shops – was among factors contributing to the bigger decline. The Treasury has also argued that other countries use a different approach to calculating GDP, resulting in lower figures for the UK. However, economists believe this does not fully account for the UK’s underperformance.
Covid-19 caused most infectious disease deaths since 1918
More than 150,000 people have died from coronavirus in the UK, according to Guardian analysis, far exceeding the worst expectations from a year ago. This is the highest rate of deaths from infectious and parasitic disease since 1918 during the Spanish flu, the last big pandemic to strike. New daily coronavirus cases peaked at more than 80,000 in the winter second wave – more than 15 times the peak recorded in the first wave – before gradually falling this spring. More than 30 million people have received a first dose of a Covid vaccine, more than half the adult population and one of the highest rates in the world.
Travel plunged during lockdown
The number of trips taken on UK roads and public transport collapsed during each lockdown, reflecting weaker economic activity as fewer people left home for work or socialising. Britain’s roads were the quietist since the 1950s in the first wave, helping reduce pollution levels, while cycling boomed. International air passenger arrivals have also collapsed, down 91% in January from a year earlier. According to Apple mobility data – which records requests made to Apple Maps for directions – driving and public transport use is creeping up again, despite the continued lockdown. But with many city commuters still working from home, transit levels remain significantly below pre-pandemic levels.
Stock markets rally after worst crash on record
Global financial markets were plunged into turmoil last spring as the Covid pandemic brought western capitalism to its knees. Big landmark moves that typically take years to reach fell like dominos in a matter of hours and days, with the FTSE 100 suffering its worst day since Black Monday in 1987. On Wall Street, the pace of decline of the Dow Jones outstripped the speed of the 1929 Wall Street crash. Global central banks cut interest rates close to zero and pumped billions into the financial system using quantitative easing to restore confidence, stabilising the situation. Since then, several big indices have rallied to fresh record highs. Shares in big US tech firms have soared as the pandemic pushes more activity online, boosting the fortunes of the world’s richest billionaires. However, the FTSE 100 remains about 1,000 points below its pre-pandemic peak.
Inflation drops with economy under pressure
Faltering demand for goods and services during the pandemic has depressed the rate of inflation, with the consumer prices index (CPI) falling close to zero as energy costs dropped and many firms cut their prices to entice reluctant buyers. Reflecting the collapse in demand, US oil prices turned negative for the first time in history. With record support from governments and global central banks, economists expect inflation to rise as consumers go on a spending spree after lockdown measures are relaxed.
Unemployment rises by less than feared
The impact of Covid on the economy drove up redundancies at the fastest rate on record last year, far surpassing the damage caused by the 2008 financial crisis. Young workers, those in precarious employment, and those in hardest-hit sectors such as hospitality, bore the brunt. The unemployment rate reached 5%, representing 1.7 million people, up from 4% before the crisis struck. However, the rate fell slightly in January from 5.1%, the first decline since the pandemic started. In July last year, the Office for Budget Responsibility forecast peak unemployment of 12%, or about 4 million people. The Treasury watchdog has since downgraded its estimate to 6.5%, about 2.2 million.
Covid-19 fuels biggest peacetime government deficit
The government has pumped more than £400bn into its emergency coronavirus response since the pandemic began, while tax revenues have collapsed. The UK government’s budget deficit – the gap between spending and income – is on track to reach a peacetime record of £355bn this year, or 17% of GDP in the financial year ending in March. The national debt – the combined total of every deficit – has risen above £2.1tn, almost 100% of GDP, the highest level since the 1960s. However, the cost of servicing Britain’s debts has plunged to historical lows. The chancellor, Rishi Sunak, plans to raise taxes and cut public spending in response. Some economists say there is no need if the economy recovers quickly, while others warn efforts to cut the deficit too soon would choke off growth.
GDP shrinks by the most since 1709
Official figures confirmed the UK economy suffered its biggest annual decline in 300 years in 2020 but that a double-dip recession at the end of the year was avoided. The ONS said gross domestic product (GDP) fell by 9.9% in 2020, the biggest decline since the Great Frost of 1709. However, the nation has adapted to restrictions, preventing steeper falls in economic activity in the second and third lockdowns. With rapid progress administering the vaccine, the economy is forecast to return to its pre-pandemic size earlier than expected next year, but lasting scars are expected to remain.
House prices soar despite Covid recession
Unlike previous recessions, when house prices typically track declines in economic activity, the Covid crash has been accompanied by a boom in property values. The government’s stamp duty holiday has fuelled growth, as well as people reassessing where they live during lockdown and moving – looking for more space, or a home away from big city centres. The housing market is also supported by more affluent households able to save during the crisis while working from home. Meanwhile, lower-income workers have fallen behind on rent. Property industry experts have warned prices could fall after the tax break ends and as unemployment rises.
And another thing we’ve learned … furlough pays the wages of millions of workers
The government furlough scheme, which pays 80% of a worker’s wage up to £2,500 a month, has been used to protect more than 11m jobs in the UK in total since its launch last March, at a cost of more than £57bn so far. Extended by Rishi Sunak until September, the scheme has been credited with preventing a far higher surge in unemployment. Almost 9m jobs were furloughed in May last year at the peak of the first wave. Usage of the scheme then fell steadily last summer but remained above 2m when Sunak insisted furlough would end last October (before he later extended it), driving up job losses. Furlough numbers then rose sharply in the second wave, but hit a lower peak of close to 5m, as employers adapted to lockdown. Still, about 4.7 million workers remained furloughed at the end of February, according to the latest official figures, with the highest take-up rates in London, among women and younger workers, and in the accommodation and food services sector.