BRITAIN’s coronavirus-hammered economy grew more quickly than previously thought in the final three months of last year but still shrank by the most in more than three centuries in 2020 as a whole, official data showed on Wednesday (31).

The figures also revealed the biggest pile of household savings on record last year, which the Bank of England thinks will fuel a recovery when consumers are freed from lockdown.

Gross domestic product increased by 1.3 per cent between October and December from the previous three-month period, the Office for National Statistics said.

Economists polled by Reuters had expected the growth rate to remain at the ONS’ preliminary 1 per cent estimate.

In 2020, gross domestic product fell by 9.8 per cent from 2019, only slightly less sharp than an initial estimate of a 9.9 per cent slump.

Britain’s economy suffered the biggest drop of all countries in the Organisation for Economic Co-operation and Development except for Argentina and Spain last year, OECD data has shown.

It remained 7.3 per cent smaller than before the pandemic, in inflation-adjusted terms, the second biggest drop among eight major economies listed by the ONS.

Although this partly reflects the way different countries produce the data, some of the weakness shown by Britain’s economy – particularly in household spending – was real.

Hiring is back

After a rollercoaster 2020, when GDP careened 19.5 per cent lower in the second quarter, during the first lockdown, and grew by almost 17 per cent in the third, the BoE expects growth of 5 per cent in 2021 as a whole, helped by Europe’s fastest vaccination programme.

A survey published earlier on Wednesday showed employers were much more confident about hiring staff.

Key to the recovery prospects will be the extent to which households spend savings they racked up while stuck at home.

The savings ratio rose to 16.1 per cent from 14.3 per cent in the third quarter and for 2020 as a whole it hit a record high of 16.3 per cent, compared with 6.8 per cent in 2019, the ONS said.

Samuel Tombs, an economist with Pantheon Macroeconomics, said the rise in savings might be offset by the hit to the value of shares held by investors.

“Households, therefore, likely will cling on to this cash, or top up their underperforming pensions, rather than spend it,” he said.

The figures also showed growth in business investment which rose by 5.9 per cent in the fourth quarter from the previous three months. But household spending fell by 1.7 per cent and government spending, up by almost 7 per cent, was the key support for the economy.

Finance minister Rishi Sunak announced yet more stimulus earlier this month to see the economy through the end of the government’s restrictions, taking his total emergency response to more than  £350 billion.

Separate data showed Britain’s current account deficit widened to  £26.3bn in the fourth quarter, almost double the shortfall in the previous three months, as firms rushed to import goods before the January 1 start to the country’s less open trade relationship with the EU.

But the deficit – which leaves Britain reliant on foreign inflows of cash – came in below forecasts of  £33bn in the Reuters poll.

In 2020 as whole, the deficit stood at 3.5 per cent of GDP, about the same as over the previous three years.