HomeU.K. Suffers Worst Economic Contraction in More Than 300 Years

U.K. Suffers Worst Economic Contraction in More Than 300 Years

As we go deeper and deeper into the new year, the final figures from 2020 come out. Hit by the COVID-19 pandemic, 2020 brought recessionary conditions almost in all countries of the world. Only China managed to pick-up the lost ground, mainly because it was the first country hit by the virus in the first place. 

In the United Kingdom, 2020 brought the biggest fall in output in more than three centuries. The -9.9% decline in 2020 was bigger than the 1921 post-WW1 depression.

Small and Medium-Size Enterprises Took the Biggest Hit

Over 40% of the small and medium-sized enterprises (SME) applied for some sort of help from the government. Without it, the fall in output would have been even worse because most of these firms continued to operate, albeit at extremely reduced levels, and, in some cases, they did not operate at all.

A study run by McKinsey in November 2020, revealed that over half of the SMEs would have gone out of business if the pandemic would hold for another twelve months. And then the news of efficient vaccines came out and the sentiment improved accordingly. From that moment on, it made sense for many SMEs to rely still on government support as long as there was a light at the end of the tunnel. Otherwise, it made no sense to keep the light on for the simple reason that most of the help came in the form of loans, albeit under extremely favorable conditions. Yet, a loan is a loan, and money borrowed needs to be repaid.

Brexit Did Not Help Too

On top of the pandemic, the prospect of Brexit weighed on the British businesses too. Almost two months after the United Kingdom and the European Union have reached an agreement, the impact of Brexit on U.K. businesses is yet to be seen.

We’ve already learned that for the first time in decades, the Amsterdam exchange registered a bigger daily volume than its London equivalent. In other words, financial services left the U.K., and that was one of the biggest services sectors with a huge impact on the GDP. That is only one example that the market participants found out recently, but many others are expected to follow.

With all the doom and gloom, though, the British Pound (GBP) remains bid against most of the G10 currencies. The GBPUSD climbed close to 1.40 this week, the GBPCHF cross traded above 1.24, and the EURGBP cross moved below 0.87. After all, when some doors close, some others open – the investing world never sleeps, as some see opportunities where others fear losses.

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