UK's 2020 GDP Decline Revised to 11%, 'Worst in 311 Years'

by Park Pyunghee

Published 23 Aug.2022 10:50(KST)

Future Outlook Also Bleak... Citigroup "UK Inflation to Surge to 18.6% in January Next Year"

[Asia Economy Reporter Byunghee Park] The UK Office for National Statistics (ONS) has revised down the GDP contraction rate for 2020, the year the COVID-19 pandemic struck, to 11%, according to major foreign media reports on the 22nd (local time).

The initially announced GDP contraction rate for 2020 was 9.3%. The 2020 GDP contraction rate marked the worst since the Great Frost of 1709.

Craig McLaren, a statistician at the UK ONS, explained the reason for the downward revision, saying, "The cost of public healthcare services was higher than initially estimated," adding, "This means the contribution of the public healthcare sector to the economy has decreased."

As the significant impact of COVID-19 was reconfirmed, it is expected that economic recovery will take a long time. Especially, the crisis sentiment has intensified amid the worst inflation in 40 years.

The UK's consumer price inflation rate in July rose to 10.1%, reaching double digits for the first time in 40 years. It was also the first among the Group of Seven (G7) countries to record double-digit inflation.

Earlier, the UK think tank National Institute of Economic and Social Research (NIESR) warned of the risk of stagflation, where economic slowdown and price increases occur simultaneously, forecasting that real disposable income will decrease by 2.5% this year and remain 7% lower than pre-COVID-19 levels until 2026.

UK Consumer Price Inflation Trend [Image source= Bloomberg]

The future economic outlook is also bleak.

Benjamin Navarro, an economist at Citigroup, predicted that the UK's consumer price inflation rate will rise to 18.6% by January next year before declining.

Navarro's forecast can be interpreted as a critique that the Bank of England (BOE), the UK's central bank, has misjudged inflation projections. Earlier this month, the BOE predicted at its monetary policy meeting that inflation would peak at 13.3% in the fourth quarter of this year.

The last time the UK's inflation rate was higher than 18.6% was in 1976. At that time, the global economy was shaken by the oil shock, and the UK was requesting bailout funds from the International Monetary Fund (IMF).