"The economy shrank by another 2.9% in the first month of the year, leaving the UK economy 9% smaller than its pre-pandemic peak."
Falls in consumer-facing services industries and education drove a contraction of 3.5% in the services sector in January.
Output in the production sector fell by 1.5% in January 2021, after manufacturing contracted for the first time (by 2.3%) since the initial pandemic-driven fall in output in April 2020.
The construction sector grew by 0.9% in January 2021, driven by growth in new work.
January’s GDP was 9.0% below the levels seen in February 2020 and 4.0% below October 2020 (the initial recovery peak).
Rory Macqueen, principal economist at NIESR, said: “While January’s lockdown has unsurprisingly hit the hospitality, retail and education sectors, returning to levels of output last seen in summer 2020, many other sectors have not been affected to anything like the same extent as they were last year.
"With February and March likely to see activity at similar levels, this provides further support for the view that the fall in the first quarter of 2021 may be smaller than expected. The pace of recovery from the second quarter will depend on whether vaccines continue to roll out according to plan, whether further mutations or outbreaks bring about a resurgence in the virus, and how quickly public confidence returns.”
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, commented: "As the cold snap told hold in January, amid the third national lockdown, another chill descended on the economy, as people again huddled at home to avoid the icy clutches of the virus. The UK was already reeling from the worst contraction in GDP in almost three centuries when the great frost of 1709 disrupted trade across Europe. The economy shrank by another 2.9% in the first month of the year, leaving the UK economy 9% smaller than its pre-pandemic peak.
"But the ice wasn’t as thick as forecast. This time around building sites were not mothballed and workers kept the machinery whirring, helping construction output grow by 0.9% in January after a 2.9% fall in December.
"Although the services sector weighed overall growth down, with a decrease of 3.5% in January, it could have been significantly worse. Many employees had already shifted their work and social lives online and were well set up for the stay at home order.
"Inevitably factories took a hit, with higher infection rates causing absence and some parts of operations reduced in size due to the restrictions. The production sector fell by 1.5% but it followed eight months of consecutive growth, helping it make up for the sharp fall in output earlier in the pandemic. The sector was 5.0% below its February 2020 level.
"The journey back to economic health is still arduous with the latest lockdown another big pothole to manoeuvre round on the road to recovery. But as people have hibernated at home, with social lives on hold, many savers have been squirreling away record amounts of cash. That huge piggy bank is likely to be cracked open when retail and hospitality fling open their doors once more. The rapid roll out of vaccines is also helping by instilling a big dose of confidence, which should add to the economic rebound once restrictions are finally eased."
