UK avoids double dip recession – but economy shrank at fastest rate in 100 years in 2020 due to coronavirus

THE UK economy has swerved a double dip recession – but it shrunk at its fastest rate in 100 years in 2020.

Gross domestic product (GDP) dropped by 9.8% over the course of the 12 months due to the coronavirus pandemic.

But GDP was up 1% for the last three months of the year – October to December -meaning the economy has avoided a double dip recession for now.

A double-dip recession is when the economy shrinks, briefly recovers, and then contracts again.

The UK economy would need to shrink again for two consecutive quarters – or six months – to fall into double-dip recession territory, experts at AJ Bell told The Sun.

On a monthly basis, GDP increased by 1.2% in December 2020, following a revised 2.3% decline in November.

What this means for your personal finances

GROSS domestic product (GDP) is one of the main indicators used to measure the performance of a country’s economy.

When GDP goes up, the economy is generally thought to be doing well although today's figures aren't as strong as hoped.

Negative growth often brings with it falling incomes, job cuts and lower consumption.

The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.

This decides how much it will charge banks to lend them money, and is a way to try to control inflation and the economy.

So, for example, if prices are rising too fast, the BoE could increase that rate to try to slow the economy down. But it might hold off if GDP growth is slow.

The BoE cut interest rates twice in March due to coronavirus.

Base rate cuts means mortgage borrowers now typically benefit from lower rates, but at the other end of the scale savers earn less on their savings.

To measure GDP, the Office for National Statistics (ONS) collects data from thousands of UK companies.

Andrew Wishart, UK economist at Capital Economics, told The Sun the full impact of the crisis on jobs and businesses will only become apparent once the government starts to withdraw its support.

The research firm expects unemployment to double from 4 per cent to 8 per cent, with the same number of companies likely to go bust.

It comes after the Bank of England's chief economist said the UK economy is set to bounce back "like a coiled spring" after Brits saved up to £250billion during the coronavirus lockdown.

Andy Haldane said Brits had amassed "accidental savings" during the lockdown – with people likely to be keen to spend big as restrictions are lifted.

The Bank of England expert predicts that by the end of June, households in the UK will have saved up to £250billion.

He thinks a big part of that money will be spent on social occasions after Brits have not been allowed to see their friends, enjoy holidays or meals out due to Covid-19 lockdown restrictions.

The economist said most people are now "desperate to get their lives, including their social lives, back" and will seize the opportunity to do so when it is allowed.

He wrote in an article for the Daily Mail: "The recovery should be one to remember, after a year to forget.

"A year from now, annual growth could be in double-digits."

More to follow…

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