The coronavirus pandemic ushered in a dismal record year for the economy in 2020 – but the introduction of vaccines gives experts hope in 2021.
The chaos wrought by Covid-19 has led the UK to its largest annual production decline in more than 300 years.
The UK experienced its steepest recession in history, interest rates slashed to their lowest levels in history and peacetime borrowing peaked in peacetime amid the aftermath of the pandemic.
The economy rebounded into 2020, already weighed down by Brexit fears and year-end elections, even before a crisis broke out.
UK production rose 1.4% in 2019. This was one of the slowest growth rates since the financial crisis in 2008 and 2009.
But last year’s worries pale in comparison to the year the UK economy suffered in 2020.
The PA news agency examined how the year developed:
The Covid crisis and the economy
The bank’s rhetoric, first described in February by former Bank of England Governor Mark Carney as a potentially “sharp and big” shock to the economy, quickly changed to warnings of “very sharp” effects in the course of the Covid- Crisis.
After falling 7.3% in March, gross domestic product (GDP) – a measure of the size of the economy – fell by almost a fifth in April as the UK stalled in the spring.
The UK officially entered its record-breaking recession between April and May after GDP plunged 18.8% after falling 3% in the first three months of the year.
This resulted in the UK experiencing one of the worst recessions of any G7 country due to its heavy dependence on the ailing service sector.
It was a baptism of fire for Mr Carney’s successor, Andrew Bailey, when he took over the helm at the Bank of England in March – with his first assignment lowering interest rates to the all-time low of 0.1% while trying to prop up the country battered economy.
The bank cut rates twice from 0.75% to 0.1% in less than two weeks in March, while also firing up the money printing machines with another quantitative easing (QE) from £ 200 billion to £ 645 billion.
Since then, QE has continued to climb to a mammoth of £ 895 billion, with warnings that growth will not recover until 2022.
Since there is little room for maneuver, the bank is examining the possibility of setting interest rates below zero – another first for Great Britain.
The bank has announced that it will examine the feasibility of negative interest rates. This has got borrowers excited about the opportunity to get paid for taking out a loan.
Despite rising expectations of the financial markets for interest rates below zero, it is still far from certain whether the bank will resort to such a move.
There may be little choice if the economy does not recover as hoped in 2021.
What could happen in 2021?
Given the year-end Brexit deadline and tightened restrictions casting a cloud at the beginning of 2021, the path is unlikely to go smoothly for the economy.
Howard Archer, EY Item Club’s chief economic advisor, said: “The first quarter is expected to be more difficult due to the new, tighter activity restrictions.
“At best, we are planning very modest growth for the first quarter of 2021, and it is becoming increasingly likely that the economy will not grow more than 5.5% in 2021.”
The government has gone to great lengths to prop up the economy and protect jobs, and has extended its vacation program until the end of April.
However, this was not without cost. Government borrowing rose to £ 240.9 billion in the first eight months of fiscal alone and is expected to reach £ 393.5 billion by the end of March.
While the outlook for the coming year is far from certain, the launch of a Covid-19 vaccine in the UK from December has given cause for hope.
Mr Archer said he expected the economy “will improve over the course of 2021 thanks to the introduction of the Covid-19 vaccines”.
Experts believe it will take at least 2022 for the economy to recover to pre-crisis levels, and it will likely take a very different shape, but after a bad year like 2020, the only way up is.