In the United Kingdom, economic output increased by 1.3 percent in the fourth quarter of last year compared with the previous quarter. The recovery after the pandemic-related slump in the first half of the year thus continued at a slower pace; in the third quarter, gross domestic product still rose by 16.9 percent. Economic output at the end of 2020 was still more than eight percent below the level at the end of 2019. Economic development in the fall and winter was better than could have been expected, as various lockdown measures, some of them drastic, were in force. Personal services in particular continued to be depressed. Private consumption was down slightly in the fourth quarter, while public consumption significantly increased. The agreements reached between the United Kingdom and the European Union at the end of December have significantly reduced uncertainties regarding future relations.
In the first quarter, the UK economy is expected to contract by probably around two percent. The Office for National Statistics estimates that economic output fell by 2.9 percent in January. However, the UK vaccination program has got off to a very good start by international standards and is likely to have increased confidence that the pandemic will gradually subside. This should contribute to a solid recovery during the spring. This is also indicated by the slight increase in retail sales in February and improved consumer confidence. Business sentiment has also brightened. The gradual easing of containment measures will further stimulate private consumption. This should also improve the situation on the labor market. In addition, the household saving ratio increased from 6.8 percent in 2019 to 16.3 percent in 2020. Households have experienced the pandemic in different ways. Some groups have been suffering a lot, while other groups could increase their savings. Over time, at least some of these savings will be used for private consumption purposes when lockdown measures are eased.
Against the backdrop of strong consumer demand and gradually increasing foreign demand, business investment will also increase noticeably. Corporate financing conditions will probably be somewhat less favorable than last year, but will continue to support investment. Monetary policy will remain expansionary and support the economic recovery.
All in all, I expect that the UK economy will grow by around five percent this year. Next year, the growth rate is also likely to remain high at five and a half percent.
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