Omicron likely to slow UK bounceback from Covid shock to economy | Economic growth (GDP)

It has taken a year and a half but the UK economy has regained the ground lost during the early stages of the Covid-19 pandemic. A better than anticipated performance last November means national output is now 0.7% higher than it was in February 2020.

Other countries reached this milestone sooner, with the US, for example, already operating well above its previous peak. Even so, Britain has experienced what economists call a V-shaped recession, with a precipitous drop in activity in March and April 2020 followed by a brisk – if occasionally interrupted – recovery.

That pattern is explained by the nature of the Covid shock. Governments imposed lockdowns in an attempt to prevent the virus spreading and, once the restrictions were eased, businesses that had been closed reopened and economies bounced back. The UK economy contracted by less during the financial crisis of 2008-09 than it did in 2020 but took much longer to regain the lost ground.

The economy is still smaller than it would have been had the pandemic never happened, and a key question over the coming months will be whether it can get back to its pre-Covid trend or whether there will be a permanent loss of output. The Bank of England and the Office for Budget Responsibility both expect Covid-19 to result in some scarring, even though the resilience of the labour market means estimates of the lasting damage have been gradually scaled back over the past 18 months.

The 0.9% monthly increase in output in November was down to a combination of factors: the easing of supply chain bottlenecks that had been hitting manufacturing and construction firms; consumers shopping early for Christmas; and people feeling more confident about going out to enjoy themselves.