Britain’s economy grew by 7.5% last year in the fastest annual growth rate since the second world war, despite falling back in December as the Omicron variant dented consumer spending.
It comes after the UK suffered one of the largest annual economic contractions of any major economy when GDP fell by 9.4% in 2020 amid the fallout from the first wave of the pandemic.
The Office for National Statistics said output fell by 0.2% in December – a stronger performance than expected – as shortages of goods in the shops in the run-up to Christmas and a record number of job vacancies also slowed the economy after a 0.7% increase in November.
City economists expected a deeper fall of 0.6% in GDP but an increase in government spending on the vaccine booster programme and the test-and-trace system prevented an even larger slump.
There was better news for the government from figures showing GDP growth in the final quarter of the year remained positive at 1% – the same as the previous quarter after the ONS revised down growth in the three months to September to 1%.
Rishi Sunak credited the Treasury’s £400bn package of support and “making the right calls at the right time” for the economy’s resilience. “I’m proud of the resolve the whole country has demonstrated, and proud of our incredible vaccine programme, which has allowed the economy to stay open,” the chancellor said.
However, Labour and trade union leaders said there was little to celebrate as living standards come under the most sustained pressure for three decades amid Britain’s cost of living crisis amid a faltering economic recovery.
Frances O’Grady, the general secretary of the TUC, said real wages were plummeting as household energy prices and the cost of the weekly shop soared.
“This toxic combination is hitting economic demand and weakening our recovery from the pandemic.”
Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said the UK’s economic recovery “continued to underwhelm” after a strong start to 2021 petered out in the final six months amid chronic shortages of workers and materials and weaker export volumes after Brexit.
The drop in GDP triggered by Omicron in December also meant that the UK economy remained smaller than before the pandemic, unlike the US, China and the eurozone.
“Covid-19 can’t be blamed for the UK’s continued underperformance; Omicron hit all western European countries simultaneously, and the UK government imposed fewer restrictions in December than those in the rest of Europe. Instead, exports continue to stand out as an area of significant weakness,” Tombs said.
The ONS said total exports of goods to the rest of the world in 2021 were down by 10.5% on 2018, a slump worth £36.8bn. Total imports fell by £23.4bn compared with 2018, a decline of 4.8%.
Kitty Ussher, the chief economist at the Institute of Directors, said the latest snapshot from the economy showed the impact of a “screeching halt to festive cheer”, with consumer-facing services down 3% in December compared with the previous month.
“Possibly ironically, one of the most buoyant contributions to economic activity was the vaccination and test-and-trace programmes. We know from our own data, however, that caution over Omicron among business leaders eased in January, so we are hopeful that next month’s data will see growth rising again.”
James Smith, a research director at the Resolution Foundation, was also optimistic that December would prove to be a blip.
“The Omicron wave has only briefly stalled the UK’s strong economic recovery, which should be more stable from here on in, allowing policymakers to focus on the more urgent cost of living crisis that Britain is experiencing.”
However, he said there were reasons to worry about the damage caused by a fall in trade.
“While Covid has undoubtedly damaged trade, so, too, has the introduction of fresh trade barriers with the EU.
“As well as facing up to the cost of living challenge, the government also needs to redouble efforts to boost trade as part of a new economic strategy for the 2020s.”
