By William Schomberg and Andy Bruce

LONDON (Reuters) – Britain’s financial system shrank lower than feared in January because the nation slipped right into a coronavirus lockdown, official knowledge confirmed, however commerce with the European Union has been hit exhausting affected firstly of the nation’s new commerce relationship after Brexit.

Gross home product in January was 2.9% decrease than in December, the Bureau of Nationwide Statistics mentioned.

Economists polled by Reuters had anticipated a 4.9% contraction.

The UK financial system is predicted to shrink by 4% within the first quarter of 2021, primarily because of the newest lockdown, but in addition because of the disruption attributable to the brand new post-Brexit guidelines for commerce with the European Union, the Financial institution mentioned. England final month.

Samuel Tombs, an economist at Pantheon Macroeconomics, mentioned Friday’s knowledge and different newer indicators prompt the financial system could now be on the verge of falling 2% much less extreme within the first quarter.

The BoE is predicted to maintain its stimulus packages on maintain on the finish of its March assembly subsequent Thursday, because it predicts that Britain’s vaccination program – Europe’s quickest – will set off a rebound within the financial system within the coming months .

ONS knowledge confirmed that Britain’s exports and imports to the EU plummeted probably the most, though the ONS mentioned a distinction in the way in which the numbers had been collected resulted in some knowledge delay.

Exports of products to the EU, excluding non-monetary gold and different valuable metals, fell 40.7%. Imports fell 28.8%.

Many firms launched imports of products late final 12 months to keep away from the chance of border disruption as the brand new UK-EU commerce relationship started in early 2021 and flows world commerce have been affected by the coronavirus pandemic.

The ONS mentioned general GDP figures had been hit exhausting by the impression of social distancing guidelines on Britain’s large service sector.

“The financial system was hit noticeably in January, though smaller than some anticipated, with retail companies, eating places, faculties and hairdressers all affected by the newest lockdown,” mentioned Jonathan Athow, a statistician from the ONS.

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The manufacturing sector additionally noticed its first decline since April, as auto manufacturing fell considerably. Nonetheless, will increase in healthcare providers on account of each vaccine roll-out and elevated testing partially offset the declines. in different industries. “

Britain’s financial system shrank 1.7% within the three months to January, decrease than a median forecast of a 2.5% contraction within the Reuters ballot.

The financial system was 9.2% smaller than in January of final 12 months, in keeping with ONS statistics.

Prime Minister Boris Johnson plans to progressively ease coronavirus restrictions in England earlier than lifting most of them by the tip of June.

Progress over the following few months can be anticipated to be boosted by Finance Minister Rishi Sunak’s announcement final week that it’ll inject a further £ 65bn into the financial system, together with an extension of its protecting depart program. employment.

The ONS mentioned Britain’s dominant service sector – which has been hit exhausting by social distancing guidelines – fell 3.5% in January in comparison with December. The Reuters ballot had indicated a contraction of 5.4%.

The manufacturing sector contracted 2.3%, however output within the development sector elevated 0.9%.

The practically 3% month-to-month drop in GDP in January was a lot much less extreme than its 18.3% drop in April of final 12 months when Britain entered its first coronavirus lockdown.

Many companies have tailored to life in lockdown, together with retailers who’ve stepped up their on-line procuring operations and repair firms who’ve tried to assist staff do their do business from home.

(Reporting by William Schomberg; Modifying by Alistair Smout and Philippa Fletcher)