By David Milliken and William Schomberg

LONDON (Reuters) – Britain’s coronavirus-ravaged economy slumped by 9.9% in 2020, the biggest annual crash in output in more than 300 years, but it avoided heading back towards recession at the end of last year and looks to be on course for a recovery in 2021.

Official figures showed gross domestic product (GDP) grew 1.0% between October and December, at the top end of the range of forecasts by economists in a Reuters poll.

This makes it likely that Britain will escape two straight quarters of contraction – the standard definition of recession in Europe – even though the economy is set to shrink sharply in early 2021 due to the effects of a third COVID lockdown.

“As and when restrictions are eased, we continue to expect a vigorous rebound in the economy,” said Dean Turner, an economist at UBS Global Wealth Management.

Britain’s economy grew 1.2% in December alone, after a 2.3% fall in output in November when there was a partial lockdown, leaving output 6.3% lower than in February before the start of the pandemic, the Office for National Statistics said.

However the Bank of England forecasts the economy will shrink by 4% in the first three months of 2021 due to a new lockdown and Brexit disruption.

The central bank thinks it will take until early 2022 before it regains its pre-COVID size, assuming vaccination continues to smoothly. Many economists think it will take longer.

“Today’s figures show that the economy has experienced a serious shock as a result of the pandemic, which has been felt by countries around the world,” finance minister Rishi Sunak said.

Sunak, facing the heaviest borrowing since World War Two, will set out how much longer he intends to continue this emergency support at an annual budget on March 3.

HARDER HIT THAN MOST

Last year’s fall in output was the biggest since modern official records began after World War Two. Longer-running historical data hosted by the Bank of England suggest it was the biggest drop since 1709 when Britain suffered a ‘Great Frost’.

The fall is also steeper than almost any other big economy, though Spain – also hard-hit by the virus – suffered an 11% decline.

Britain has reported Europe’s highest death toll from COVID-19 and is among the world’s highest in terms of deaths per head.

Some of the damage also reflects how Britain’s economy typically relies more on face-to-face consumer services than other countries, as well as disruption to schooling and routine healthcare which few other countries factored in to GDP.

However, Britain has vaccinated many more people than other European countries so far, raising the prospect of a bounce-back for its economy later this year.

The BoE’s chief economist Andy Haldane said on Thursday that economic growth could hit double digits over the coming year because of households are sitting on enforced savings after spending so much time stuck at home.

Economists said Friday’s figures showed that Britain’s economy was proving more resilient to lockdowns than earlier in 2020.

“Damage from restrictions has diminished since the initial lockdown in the spring – and is more heavily concentrated in a few hard-hit, largely consumer-facing industries, hospitality being the main one,” ING economist James Smith said.

The impact of the pandemic has been highly uneven. Some sectors such as manufacturing showed output just 2.5% below year-ago levels in December, while the much larger services sector was 7.2% below.

Within the services sector, high-street retailers, pubs and restaurants have been hit especially hard.

But unemployment has risen much less than expected, largely due to government subsidies to keep people in work.

(Writing by David Milliken; Editing by Willian Schomberg, Guy Faulconbridge and Raissa Kasolowsky)

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