UK economy withstands Omicron blow

The UK economy contracted less than expected in December as growth in the health sector offset the blow that the Omicron coronavirus variant dealt to services industries.

Gross domestic product rose 7.5 per cent over 2021 compared to the previous year, the strongest pace of growth since 1940, as the economy rebounded from the pandemic hit in 2020.

Output fell 0.2 per cent between November and December, data from the Office for National Statistics showed on Friday. That was a smaller decline than the 0.6 per cent drop forecast by economists polled by Reuters, but it was the largest contraction since January 2021.

“GDP fell back slightly in December as the Omicron wave hit with retail and hospitality seeing the biggest impacts,” said Darren Morgan, ONS director of economic statistics. “However, these were partially offset by increases in the Test and Trace service and vaccination programs.”

Line chart of GDP index rebased, Q4 2019 = 100 showing The UK economic recovery continued in the last quarter

Output expanded 1 per cent in the final quarter of the year compared to the previous one, thanks to strong growth in November.

In the three months to December, GDP was still 0.4 per cent below its level in the final quarter of 2019, before the pandemic. In contrast, output in the US, China and the eurozone has recovered the ground lost during the crisis.

Growth in December was dragged down by services, where output fell 0.5 per cent compared to the previous month, as consumers spent less in cinemas, bars, and restaurants because of the spread of Omicron.

Manufacturing output rose 0.2 per cent and construction increased by 2 per cent.

In its latest assessment of the economy, the Bank of England said it expected the impact of Omicron to “be limited and of short duration,” with GDP recovering in February and March. However, it also warned that growth in 2022 will be dragged down by the largest contraction in household real income in 30 years because of rising inflation, higher taxes, and surging energy costs.

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