Britain’s recovery during the second half of last year was stronger than first estimated, according to official figures that also showed 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 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 but 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 previously believed.
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.”
Ruth Gregory, the senior UK economist at the consultancy Capital Economics, said the higher savings rate was a reason to feel optimistic that consumer spending “will go from being the weakest sector of the economy to the strongest in 2021, as households return to saving the same share of their income as they did before the crisis”.
She said the potential was for households go further and spend some of the stocks of savings accumulated last year.
Shaw said he expected the third lockdown to push down GDP by 1.8% in the first quarter of 2021, to be followed by a rebound that would push GDP 7.3% higher in 2021 as a whole.
The 9.8% annual drop marks the steepest since official records began, while historical figures from the Bank of England suggest it is 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.
The UK economy recorded among the largest contractions of all the large countries in the Organisation for Economic Cooperation and Development, with only Spain and Argentina reporting steeper falls.
In separate figures also released on Wednesday, the ONS said the UK current account deficit – the difference between the value of the goods and services the UK imports and the goods and services it exports – widened to £26.3bn in the fourth quarter of 2020.
This is equivalent to 4.8% of Britain’s GDP and is almost twice the level recorded in the previous three months as firms stockpiled imports before the Brexit deadline on 31 December.