The UK’s Economic Recovery In 2021

August 3, 2021

The UK economy - like the majority of developed nations around the world - took a huge battering in 2020. The COVID19 pandemic drastically impacted most countries’ productivity levels and sent unemployment figures soaring, while Governments scrambled to provide financial support to those that needed it. The UK has one of the most generous initiatives available with both the Furlough scheme and the Self-Employed Income Support Scheme. It meant that people still could rely on some form of income and stopped the economy from seizing up entirely. 

But what does all this mean for the future? In the first three months of 2021 alone, while the country was under its third national lockdown, GDP shrank by 1.5%. Now, it looks like it is in recovery. Here, we chart its bumpy route over the last 12 months and look to what the future may hold for the UK’s economy. 

How Badly Did The UK Economy Suffer In 2020

In the wake of the pandemic and its lockdown restrictions, the UK economy contracted by almost 10% in 2020. That is the worst contraction Great Britain has seen in just under 300 years. Despite the furlough scheme and SEISS, unemployment went up to 4.8% in the first quarter of 2021, and looks set to rise further as COVID financial support comes to an end. 

And, of course, we cannot forget the impact that Brexit had on the economy either. The difficulties seen at borders will have hampered any productivity or trade that could happen even in the midst of a national lockdown at the beginning of 2021. Plus, the uncertainty that led up to it, meant that many businesses did not know how to plan for Brexit when it did eventually happen. The indecision by the Government and the EU over many details, left so many in the dark that trying to make business decisions for the future was incredibly difficult. Trade suffered as a consequence.

What Has Made The UK Economy Grow In 2021?

Despite the doom and gloom of the UK economy numbers that came from 2020, the UK has seen a big bounce back in 2021. Arguably, this is down to the success of its vaccination programme that has been rolled out quickly. It has meant that the likelihood of social distancing restrictions lifting seemed more and more probable as the days and weeks went on. Confidence grew not only in the present, but also the UK’s future ability to open up society fully to become as productive as possible again. 

The OECD has therefore upped its forecasts of how much the UK economy will rise in 2021. In the first quarter of this year, it anticipated that the UK’s GDP would expand by 5.1%. Now, it believes it has the ability to grow by 7.2% which would mean its expansion rate would be the biggest seen since 1941. More encouraging still, was that it also believes it is on track to expand by 5.5% in 2022 as well. 


Recommended Read: Important Investment Multiples

The opening up of sectors of society was bolstered in stages through the first half of the year as the Government was able to follow its roadmap out of lockdown. Criticised in the past for not being vocal enough about the plans for the future, the Government were more exacting on what they intended - even if they did maintain that they would always be directed by data not dates. However, as schools were able to open before Easter, productivity could start to improve. Plus, other initiatives such as the stamp duty holiday meant that the construction sector also went hell for leather in production to try to encourage house buying. 

The Future For The UK Economy

The OECD was still cautious in its release of its GDP growth review however. It believes that the UK, despite how quickly it has managed to turn its fortunes around since its huge second wave at the tail end of 2020 and beginning of 2021, will bear deeper scarring than other G7 nations. 

The OECD’s report claimed that the ‘United Kingdom could suffer the biggest reduction among G7 countries (a decline of 0.5 percentage point per annum), in part reflecting the additional adverse supply-side effects from 2021 following Brexit.’ 

It partly puts this down to ‘increased border costs following the exit from the EU single market will continue to weigh on foreign trade’. In fact, trade did contract in early 2021 but the OECD also says that this should improve if the EU and the UK do continue to work closely together. Given that UK-EU goods trade decreased by almost 25% at the beginning of 2021, for the UK’s economic outlook to improve, an improved relationship is essential. 

However, when society is allowed to fully reopen, the economy should benefit from the parts of the population that have managed to build their savings. While not all that was saved in the year since March 2020, will be splurged, it is expected that people will take as much use of spare cash as possible - probably in the hospitality sector. The retail sector should also benefit from people having more money available too. 

However, financial health across different demographics further diverged from their already unequal balance. This could spell trouble for GDP growth in future. Lower-income families who were already financially vulnerable saw themselves get into debt, or worse debt, than in pre pandemic times. Higher-income families saw their financial health improve however, as their incomes were not affected yet their outgoings decreased. 

It is yet to be seen how that will play out in the coming months and years, and how that may affect the UK’s economy. Especially given that the education of children in lower-income brackets was understood to be worse during the pandemic than higher-income families. This could well act as a drag on the UK’s economy in future, as well as being bad for it now with a weak labour market. 


Rachel Lee
Having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments, Rachel now works as a full-time business and financial writer.

Risk Disclosure: Trading in financial instruments involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Before deciding to trade in financial instruments you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Best10Stockbrokers would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Best10Stockbrokers and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Best10Stockbrokers and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website. Best10Stockbrokers may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Top Brokers

Latest Articles

Why Risk vs Reward Is Crucial To Your Trading Success
Why Risk vs Reward Is Crucial To Your Trading Success
Online CFD Trading: How to Find the Best CFD Trading Platform in UK
Online CFD Trading: How to Find the Best CFD Trading Platform in UK
Top 3 CFD Brokers and Trading Tips For UK Investors
Top 3 CFD Brokers and Trading Tips For UK Investors
Is Crypto Dead?
Is Crypto Dead?
What is Financial Freedom and 5 ways You Can Get There
What is Financial Freedom and 5 ways You Can Get There