A rapid rollout of the Covid-19 vaccine across the UK’s four nations lifted GDP by 2.1% in March, helping prevent a steep decline in the economyduring the third lockdown in the first three months of the year.
The economy retreated by a better than expected 1.5% during the first quarter of 2021 as the vaccine programme allowed the government to begin easing restrictions while businesses adapted to the constraints at a quicker pace than expected.
City economists upgraded their growth forecasts for the rest of the year after the figures from the Office for National Statistics showed momentum in the economy exceeded their expectations.
Earlier in the year there were fears that the second wave of the virus in 2020 and a third lockdown would hit the economy harder and plunge the UK into a full-blown recession.
School closures and a large fall in retail sales were blamed for much of the economy’s contraction. Growth returned to all the main sectors of the economy in March as Covid restrictions eased, and at a speed not seen since August 2020.
The services sector, which accounts for about three-quarters of activity, fell by 2%, mostly because of the closure of the hotel and leisure sector.
Manufacturing, which has been hit by falling demand because of Brexit and the lockdown, maintained much of the impetus it gained in the second half of last year, and shrank by only 0.7% in the first quarter.
The construction sector, which accounts for about 6% of economic activity, expanded by 2.6% over the quarter.
Labour said many businesses could still collapse once the government’s extraordinary financial support, which continues to fund around 4m workers on furlough, is withdrawn later this year.
The economy is 8.7% below its peak in the final quarter of 2019 and is not expected to recover until next year by the Office for Budget Responsibility, the Treasury’s official forecaster. The Bank of England expects recovery to pre-pandemic levels by the end of this year.
Trade with the EU also remained depressed despite a strong recovery in March from a slump in January that followed the ending of frictionless trade with the 28-member bloc.
The new shadow chancellor, Rachel Reeves, said she was concerned that many of the hardest hit industries would be left behind during the recovery, limiting the strength of the rebound.
In the first quarter, exports to the EU were 18.1% below the level in the final three months of last year. Imports were down by 21.7%.
Last week the Bank of England upgraded its forecasts for GDP growth during 2021 to 7.25%, which would propel the economy to its fastest annual expansion since the second world war.
The central bank’s bullish outlook, mostly based on the faster than expected vaccine rollout, also predicted that unemployment would peak at below 5.5% in the third quarter of this year and business investment would rebound strongly.
Dean Turner, an economist at UBS Global Wealth Management, said: “There is reason for optimism as today’s figures confirm that the UK economy has weathered the first-quarter restrictions much better than initially feared.
“Moreover, the bounce in activity seen in March, which was the strongest monthly GDP print since August 2020, provides an encouraging backdrop for the second quarter.”
The chancellor, Rishi Sunak, said: “Despite a difficult start to this year, economic growth in March is a promising sign of things to come. As we cautiously reopen the economy, I will continue to take all the steps necessary to support our recovery.”