What’s Going On Here?Fresh data out on Friday showed the UK set a dire record last year: the country's economy shrank by the most in over 300 years. What Does This Mean?Economic growth data isn’t perfect: it’s a lagging measure, so it arrives too late to make much difference to investors’ forecasts. But it is useful to lay bare the pandemic’s effects around the world, from the US economy’s 4% shrinkage last year to the eurozone’s 7% – and now the UK’s 10%. Still, the Bank of England’s not wallowing in self-pity: its chief economist reckons the UK could surprise most forecasters and announce annual growth of 10% or more by this time next year (tweet this). Why Should I Care?For markets: There’s good news and there’s bad news.
On the positive side, the UK economy unexpectedly grew by 1% last quarter compared to the one before. That was mostly down to plenty of government spending, as well as the boost the hospitality industry earned from relaxed restrictions around Christmas. But that wasn’t enough to rescue the year as a whole, and hopes aren’t high for this quarter either: between a still-rampant health crisis, a potential post-Brexit collapse in exports, and new strains on the country’s financial services sector, most economists think the UK economy will shrink yet again.
Zooming in: There’s opportunity in a crisis.
The UK does have a couple of things going for it: the country’s ahead of the curve in its vaccine rollout, and a big rise in the household savings rate suggests there’s cash just waiting to be spent. Both factors could set Britain up for a robust recovery, and it could be its beaten-up services sector – which accounts for 80% of the country’s economy – that stands to benefit the most. That benefit should show up on certain companies’ bottom lines, and they might see their long-ignored shares suddenly back in fashion. | 
