The UK economy contracted at the start of the year due to the restrictions in place to control the pandemic, but the pace of fall was slower than economist’ expectations, data from the Office of National Statistics revealed on Friday.
Another report from the ONS showed that the January monthly fall in goods imports and exports were the largest monthly falls since records began in January 1997.
Gross domestic product declined 2.9 percent on a monthly basis, reversing an expansion of 1.2 percent in December. However, this was slower than the 4.9 percent contraction economists’ had forecast.
January’s GDP was 9.0 percent below the levels seen in February 2020, compared with 4.0 percent below October 2020, data revealed. In January, GDP was down 9.2 percent from the same period last year.
Despite a sizeable hit to January GDP, the economy looks poised for a decent recovery in activity through the second quarter, James Smith, an ING economist, said. But Brexit disruption, which contributed to a huge hit to trade at the start of 2021, will be slower to resolve.
The monthly decline in GDP was largely driven by falls in consumer-facing services industries and education. Services output was down 3.5 percent in January.
Likewise, industrial production fell 1.5 percent as the manufacturing shrank 2.3 percent, which was the first fall since the initial pandemic-driven fall in output in April 2020.
Economists had forecast industrial output to fall 0.6 percent and manufacturing to decline 0.8 percent.
After a 2.9 percent drop in December, the construction sector grew 0.9 percent in January driven by growth in new work.
After the end of the Brexit transition period, exports to EU countries declined 40.5 percent and imports from EU slid 28.9 percent, the ONS reported.
At the same time, overall exports of goods plunged 18.3 percent and imports were down 22.8 percent in January. Consequently, the visible trade gap narrowed to GBP 9.82 billion in January from GBP 14.3 billion in December. At the same time, the total trade deficit decreased to GBP 1.63 billion from GBP 6.2 billion a month ago.
While the plunges in exports and imports were not entirely due to Brexit, they increase the chances that Brexit will have a longer lasting influence on trade flows, Paul Dales, an economist at Capital Economics, said.