Britain’s recovery during the second half of last year was stronger than first estimated, according to official figures that also showed that households put away more money in savings accounts than previous data suggested.
In a series of revisions to its data covering the Covid-19 pandemic, the Office for National Statistics (ONS) said the economy expanded by 16.9% and 1.3% in the third and fourth quarters of 2020 respectively. This marked steep increases on initial estimates of 16.1% and 1%.
Analysts said the more robust recovery than first pencilled in by the ONS gave hope for a broader expansion during 2021 as the economy gained momentum.
However, the ONS contrasted the improved picture for the second half of 2020 with a deeper recession over the first and second quarters.
Gross domestic product (GDP), a measure of the size of the economy, shrank by even more than first forecast between April and June, plummeting by 19.5% against the 19% initial estimate.
Over the year, the UK’s GDP fell by 9.8% against the 9.9% initially estimated, which was still the worst annual performance for more than 300 years.
Disposable incomes were flat over the year, rising by just 0.1% after being adjusted for inflation to keep average household spending power flat. But the lack of things to spend money on meant many households accumulated a level of savings that the ONS said was higher than it had previously expected.
The saving rate, which is cash saved as a share of disposable income, increased from 14.3% in the third quarter of 2020 to 16.1% in the fourth quarter.
Philip Shaw, an economist at the investment firm Investec, said: “Our estimate of excess or pent-up savings now stands at £121bn, equivalent to close to 10% of total household consumption in cash terms last year.”
Business surveys from the Institute for Directors (IoD) and the British Chambers of Commerce (BCC) showed that most small and medium-sized business owners expected growth to accelerate during the year as consumers returned to high streets and face-to-face contact resumed.
The IoD said businesses were beginning to hire more staff after optimism increased to its highest level since the 2019 general election. It added that difficulties with new trading terms with the EU was “a top factor having a negative impact on business”.
The BCC warned that while there were increasing levels of confidence among its members, a large number of firms had suffered higher debts and a loss of cashflow during the third lockdown that would hamper their recovery.
Last year’s 9.8% drop in GDP marked the steepest fall since official records began, while historical figures from the Bank of England suggest it was the biggest contraction since the Great Frost of 1709.
It would take only a small revision for the recession triggered by the pandemic to be milder than the next worst period in 1921, when the collapse in income after the first world war wiped 9.7% off GDP.
But the ONS said its GDP estimates were subject to more uncertainty than usual and likely to have larger-than-normal revisions owing to the challenges of collecting data in the pandemic.