Britain’s economy grew by a record 7.5% last year as Covid curbs eased after a pandemic-induced meltdown, official data showed on Friday, but analysts warned a skyrocketing inflation clouded the outlook for 2022.
The expansion, which was the fastest since records began in 1948, followed a record fall of 9.4% in 2020, the Office for National Statistics (ONS) added in a statement.
Economies around the world were hit in 2020 by the deadly pandemic, which triggered lockdowns and other public health restrictions that have since largely been lifted.
The ONS added on Friday that the UK economy grew by 1.0% in the fourth quarter despite the emergence of the Omicron Covid variant, matching its expansion in the third quarter.
– December struck by Omicron –
However, gross domestic product fell 0.2% in December due to fallout from the rapid spread of Omicron – which is widely considered less dangerous than earlier variants but has hit the travel sector.
“GDP fell slightly in December as the Omicron wave hit, with retail and hospitality the hardest hit,” said ONS director of economic statistics Darren Morgan.
“However, these have been partially offset by increases in the Test and Trace service and vaccination programs.
“Despite the setback in December, GDP grew robustly through the fourth quarter as a whole, with the NHS (National Health Service), couriers and employment agencies all helping to support the economy,” Morgan added.
December activity held steady at its February 2020 level, before Covid hit.
Still, the fourth quarter of 2021 was slightly lower than the same period in 2019.
– ‘Remarkably resilient’ –
UK Finance Minister Rishi Sunak welcomed the data.
“The economy has been remarkably resilient, with the UK growing the fastest in the G7 last year,” he said in a statement, noting that it has been boosted by the broad measures of government stimulus and rapid vaccination campaign.
“I’m proud of the determination the whole country has shown, and proud of our incredible vaccination program that has kept the economy open.”
The UK government is preparing for the nation’s full emergence from the long-running health emergency.
England will scrap the legal requirement to self-isolate after testing positive for Covid-19 later this month if infection levels remain stable, Prime Minister Boris Johnson unexpectedly announced on Wednesday.
The proposed move would be one of the most dramatic relaxations of coronavirus rules by any country so far in the pandemic, as Johnson doubles down on his strategy of trying to “live with Covid”.
At the end of January, England lifted almost all of the remaining Covid restrictions that had been reimposed in early December to tackle Omicron.
– Cost of living crisis –
Despite Friday’s bright data, economists are warning that the UK’s outlook is clouded by a cost of living crisis that has been fueled by soaring national energy costs.
Economies around the world have been battling decades-long high inflation that is forcing central banks to raise interest rates, including the Bank of England which this month raised its core cost of borrowing for the second time consecutive.
Britain is experiencing the highest annual inflation rate for nearly 30 years, while the cost of living is set to rise further from April due to a tax hike on British workers and businesses and rising energy bills.
“While Omicron’s downside risks have faded, the recovery now faces the more conventional economic challenge of high inflation,” said EY ITEM club economist Martin Beck.
“Consumers (are) facing the greatest pressure on purchasing power in over a decade,” he added.
Annual inflation in the UK hit 5.4% in December, fueling fears of a squeeze in the cost of living as wages fail to keep pace.
The BoE raised interest rates this month to 0.50% and expected inflation would peak at 7.25% in April.