Britain’s economy shrank by less than feared in January when the country went back into a coronavirus lockdown, but trade with the European Union was hammered as new post-Brexit rules kicked in, write William Schomberg and Andy Bruce.

Gross domestic product was 2.9% lower than in December, the Office for National Statistics (ONS) said.

Economists polled by Reuters had expected a contraction of 4.9% and government bond prices fell as investors took the data as a sign that the Bank of England was less likely to pump more stimulus into the economy.

Britain suffered its worst economic slump in three centuries last year when it shrank by 10%. It has also been hit with Europe’s biggest COVID-19 death toll of over 125,000 people.

But the country is racing ahead with vaccinations and, after Friday’s figures, economists said they expected the economy would shrink by 2% in the first quarter of 2021, half the hit forecast by the BoE only last month.

Many businesses are learning to cope with lockdowns, including retailers who have ramped up their online shopping operations and services firms that have tried to help workers to do their jobs from home.

Samuel Tombs, with Pantheon Macroeconomics, predicted a 5% second-quarter growth rebound “which would kibosh the chances of the Monetary Policy Committee reducing Bank Rate this year.”

The BoE looks set to keep its stimulus programmes on hold next Thursday.

The ONS figures also showed exports and imports from Britain to the EU plunged by the most on record, although there was a delay in gathering some of the data and there were signs of a pick-up towards the end of January.

Exports of goods to the EU, excluding non-monetary gold and other precious metals, slumped by 40.7%. Imports fell by 28.8%.

Many companies brought forward imports to avoid border disruption from Jan. 1 onwards, and global trade flows have been hit by the coronavirus pandemic.

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