David Milliken

LONDON (Reuters] – The UK’s economy contracted less in December than expected due to Omicron COVID-19. Many people opted for working from home, avoiding Christmas socialising. However analysts warn that rising inflation will slow down the recovery by 2022.

According to the Office for National Statistics, December’s gross domestic product fell 0.2% in comparison with November. It was 6.0% lower than one year ago.

Reuters polled economists and forecasted a 0.6% decrease in monthly GDP for the fifth largest economy. The output would be 6.3% more than a year ago.

Economy grew 1.0% in fourth quarter overall, at the same rate that the prior quarter.

“Despite December’s setbacks GDP grew robustly over the fourth quarter, with the NHS and couriers all supporting the economy,” ONS economist Darren Morgan reported.

While December’s GDP was similar to its February 2020 level, shortly before the pandemic, the output of the fourth Quarter was slightly less than the output from the quarter that ended in March 2019, which was the final full quarter before it.

The November GDP monthly growth rate has been revised to 0.7%, from 0.9% in the previous estimation.

The number of COVID-19-related infections in Britain reached a peak around the beginning of this year. Since then, they have fallen rapidly and, according to the Bank of England, output would return to pre-pandemic levels by March.

BoE is facing greater pressure from inflation. The BoE expects that its 30-year-old high will be around 7.25%. This would occur when the BoE implements an additional 54% increase in domestic energy tariffs.

Suren Thiru of the British Chambers of Commerce said that “the UK’s economic outlook is materially worse in 2022 because of the burden of rising inflation as well as soaring energy prices and higher taxes for consumers and businesses.”

Two interest rate increases by the central bank since December were the first in a row since 2004. Financial markets now expect rates to be at least 1.75% before the end of the year.

In 2021, economic output as a whole increased by 7.5%. It was the strongest increase since records were started by the ONS in 1948. Also, it was the fastest growth since World War Two when data from the Bank of England was used.

In 2020, output fell 9.4%. This is the largest drop in output since 1919 after demobilisation following World War One.