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UK economy suffers a “notably smaller” decline of 2.9 per cent in January

National lockdowns have continued to have a negative impact on the UK economy as the latest figures show UK GDP fell by 2.9 per cent in January.

The latest figures from the Office for National Statistics (ONS) reveal that while restrictions continue to hamper UK output, the impact is much less severe than in the first lockdown a year ago.

In April 2020, the UK saw its worst ever month-on-month contraction, with GDP falling by a record 20.4 per cent.

A 2.9 per cent contraction this January is still bad news, but it demonstrates that British businesses and consumers have adapted to living with coronavirus.

Falls in consumer-facing service industries and education drove a contraction of 3.5 per cent in the services sector in January 2021.

Meanwhile, the production sector fell by 1.5 per cent due to a decline in manufacturing output for the first time since last April.

The construction sector grew by 0.9 per cent month-on-month, driven by a growth in new work.

The January GDP losses follow growth of 1.2 per cent in December 2020, when Britain briefly emerged from the national lockdown.

Lockdown has now been in place for more than 9 weeks, since January 4.

January GDP was 9 per cent below pre-pandemic levels and 4 per cent below levels seen in October 2020 – the initial recovery peak.

The services sector was 10.2 per cent below where it was in February 2020, while for construction, the figure was only 2.6 per cent.

The three month rolling average shows that, in the quarter to January 2021, GDP contracted by 1.7 per cent, down from a 1 per cent growth in the quarter to December 2020.

Alpesh Paleja, CBI lead economist, said: “Activity fell in January as widely expected, with much of the UK entering some form of lockdown at the start of the year.

“However, the decline was notably smaller than the first lockdown in spring 2020, demonstrating the growing ability of businesses and households to adapt to greater restrictions on mobility.

“Nonetheless, a year of repeated restrictions have taken their toll on growth, jobs, costs and wellbeing.

“There are reasons for optimism, with vaccine rollout proceeding at pace, and further financial support in last week’s Budget providing a bridge for firms to get to the other side.

“As we look towards recovery, the Government must now have a laser-like focus on the UK’s longer-term competitiveness by prioritising measures which stimulate jobs and skills growth, fulfil levelling-up ambitions and accelerate moves towards net zero.”

BCC head of economics Suren Thiru added: “The latest data confirms a better than expected start to the year for the UK economy as the third lockdown and post-Brexit border disruption combined to trigger only a relatively modest decline in economic activity in January.

“The vaccine rollout and budget stimulus will boost output as restrictions ease.

“However, the lingering economic effects of COVID-19, including elevated consumer and business debt levels, may severely limit the pace of any recovery.”