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News Update: The UK Economy is Bouncing Back

Some good news for Britain’s recovery effort during the ongoing coronavirus pandemic. The Office for National Statistics (ONS) released figures that reveal recovery during the second half of last year was better than expected.

This does not constitute advice and advice should be sought in all instances before acting on it.

The key points

The statistics state the economy expanded by 16.9% and 1.3% in the third and fourth quarters of last year, respectively. The official figures are a step up from the initial estimates of 16.1% and 1%. However, it’s important to remember how deep the recession was over the first and second quarters.

Between April and June, gross domestic product (GDP), shrank by even more than experts believed it would. During this time, GDP plummeted by 19.5%, half a percentage greater than initial estimate. Moreover, the year was the worst annual performance for more than 300 years, with the UK’s GDP falling by 9.8% — the biggest contraction since the Great Frost of 1709.

After adjusting for inflation, disposable incomes only rose by 0.1%, to keep household spending power essentially flat.

Source: ONS

Because of lockdown restrictions, people weren’t able to spend money as they normally do which resulted in higher than expected savings. In fact, the saving rate, which is cash saved as a share of disposable income, increased from 14.3% to 16.1% from Q3 to Q4.

What’s predicted for the economy?

The Institute for Directors (IoD) and the British Chambers of Commerce (BCC) are both confident in growth. They expect small and medium sized business growth to accelerate this year as lockdown restrictions are lifted and people start spending all the money they’ve been saving. As business picks up, more staff will be required again, further stimulating the economy.

What does the state of economy mean for your personal finances?

Before activity kicks off, be sure to meet with your financial adviser to review your financial plan and put in place any changes while it’s still optimal to do so. Book in an appointment with us today.

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