UK gross domestic product (GDP) contracted 9.9 per cent last year, marking the largest annual fall on record.
Data from the Office for National Statistics showed UK GDP grew one per cent in the fourth quarter of the year due to recovery in government consumption and business investment as Covid restrictions eased.
That followed 16.1 per cent growth in the third quarter.
Despite the two consecutive quarters of growth, the level of GDP in the UK is 7.8 per cent below the level recorded in the fourth quarter of 2019.
Tej Parikh, chief economist at the Institute of Directors, said the record drop in economic activity last year “underscores the challenging road ahead”.
“The return of restrictions late last year slowed the economic recovery that had been gathering pace over the summer,” Parikh said.
“While the vaccine rollout now offers light at the end of the tunnel, businesses will first need to weather a challenging winter period with the latest lockdown piling upon on last year’s cashflow difficulties.
“Adjusting to new trading terms with the EU will also enact a further cost on many organisations.”
Willem Sels, chief investment officer in HSBC’s private banking and wealth management division, added: “We already knew that the UK’s October and November figures were better than predicted, so the fact that the UK avoided a contraction in the fourth quarter should not come as a surprise.”
“In the short term, it remains unclear when lockdowns will end, and whether consumers will rush out to spend on travel and entertainment when they are free to do so,” he said.
“On the whole, rapid vaccinations paint a positive picture for future growth, as the Bank of England already noted last week. Stock markets tend to look ahead and should be supported by the prospect of the global re-opening.”