This month marks a year since the first lockdown was introduced as a public health response to the COVID-19 pandemic. The economic situation has evolved significantly over the course of the year, influenced predominantly by the different and varying restrictions on activity that have been required to contain the virus at different points in the year. This edition of the Monthly Economic Brief provides an update on the latest economic data for Scotland during a period in which Scotland and the UK have been in lockdown restrictions.
Our latest GDP data show that the Scottish and UK economy fell by a record amount of almost 10 percent in 2020, as businesses were required to close, the vast majority of which was concentrated in the first half of the year during the first national lockdown. Progress has been made with the economy partly recovering back to pre-pandemic levels, however, the pace of recovery slowed through the fourth quarter and the latest data for December show a second month of falling output reflecting the tightening of restrictions over this period. Furthermore latest UK data points to a further sharp fall in output in January as lockdown restrictions were introduced and is in keeping with latest forecasts which expect GDP to fall over the first quarter of the year.
However the fall in output from the second lockdown restrictions is significantly less than we saw last year during the national lockdown and reflects both that the restrictions are less widespread across sectors, but also indicates that businesses have adapted to operating with restrictions in place. It also reflects the fact that some businesses have remained closed and therefore their output cannot fall further and there have been notable differences opening up between sectors and their pace of recovery back to pre-pandemic levels. As restrictions have tightened over recent months we have naturally seen a greater share of businesses temporarily close and a greater share of the workforce on furlough leave. There are currently over 360,000 jobs on the furlough scheme which emphasises its importance during the current lockdown restrictions.
Businesses in consumer facing sectors, such as hospitality, tourism, the arts and retail, have been most directly impacted by restrictions, and a greater proportion of businesses in these sectors remain closed than most other sectors, with an increasing proportion of staff on the furlough scheme. These sectors remain significantly further below their pre-pandemic levels of output and ongoing closure presents heightened risks for businesses and jobs in these sectors.
The Scottish Government's timetable for lifting restrictions published earlier this week will help businesses start to plan for larger parts of the economy to reopen over the coming months. This, alongside ongoing support such as the extension of the Job Retention Scheme to the end of September, will play a key role in supporting businesses through this next phase of the recovery in which high levels of uncertainty will naturally continue to be a persistent theme.
However, it is encouraging that business optimism for the year ahead has strengthened on the back of the vaccine roll out and expectations that restrictions will start to ease over the coming year. There is potential for consumer spending and business investment to bounce back relatively strongly over the course of the year, supported by an unwinding of the increase in savings we have seen in parts of the economy over the past year.
However, significant downside risks remain as the pandemic continues to evolve both domestically and internationally. Alongside this we should start to see over the coming year a fuller picture of the impacts of the end of the EU Exit transition phase, particularly in light of the disruption to trade that we have seen at the start of the year.