The U.K. economy sank deeper than all other European countries in 2020, as confirmed by the Office for National Statistics on Friday. As everywhere else, the fall was smaller than expected, because the Covid-19 pandemic seems to have fostered much gloom and pessimism among economists and forecasters last year. And maybe also because citizens may not have complied with restrictions and lockdowns as obediently as governments were hoping.
But the question now, looking forward, is whether, after the worst recession since the 1709 Great Frost, the U.K. economy isn’t powering forward ahead the pack. That is a possibility raised by the Bank of England chief economist, Andy Haldane, who wrote on Thursday that the U.K. economy was about to turn “a decisive corner with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring.”
The U.K.’s gross domestic product shrank by 9.9% last year, official numbers showed on Friday. That is the largest slump since statistics began to be collected, much worse than the fall of the European Union economy—6.3% last year, twice as much as the 5% decline of Germany’s GDP.
But even in the midst of a severe national lockdown, and restrictions that government ministers, cautious for once, are careful enough to insist could last a few months more, it seems that the proverbial light at the end of the tunnel is getting nearer for the U.K.
The main reason for optimism is the successful vaccination campaign orchestrated by the government since December 2020. More than 20% of the population has now been injected with a shot of one of the three vaccines currently being deployed.
By comparison, just a little more than 4% of EU inhabitants have received a shot. Even though the U.K. isn’t ready yet to lift restrictions and totally free the economy from its current shackles, this means that it will reopen sooner and probably faster than the rest of Europe.
Haldane, in his article, pointed out another strong reason to expect a swift rebound: the savings accumulated by households by the end of 2020 amount to some £125 billion ($173 billion). That amount could double by the end of June.
Consumers have been prevented from spending on services—restaurants, hairdressers, dry cleaners—through most of the lockdowns. Spending on goods has continued, thanks to a massive shift to online shopping, but so-called pent-up saving is likely to jump, boosted by a bit of euphoria, whenever people are finally free to behave as they used to.
Haldane even says growth toward the end of the year could jump toward two-digit levels. His own Bank of England is, for now, more cautious, and sees GDP increasing by 5% this year and more than 7% in 2022. Under this scenario, which Haldane seems to find too conservative, the U.K. economy will have returned to its pre-pandemic level toward the end of 2022—at roughly the same time as France or Germany.
But if the vaccination campaign continues at its current pace without major glitches—and under the reasonable assumptions that monetary policy will continue to be lax, and that the government won’t try to force public finances back to the black too fast—the recovery could be even faster.