Opinion: Growing into lockdown

The UK has just emerged from what everyone hopes will be the last national lockdown. But if it isn’t, the latest Office for National Statistics (ONS) figures should offer some reassurance. UK GDP actually grew in the month of February, despite the fact that we were all staying at home. Here, Richard Dawson looks at how Britain grew into its confinement

The UK economy has grown in the midst of a national lockdown for the first time.

According to the Office for National Statistics (ONS), UK GDP rose by 0.4 per cent in February following a revised fall of 2.2 per cent in January.

The figure demonstrates just how much Britain’s economy has adapted to coronavirus pandemic restrictions since they were first introduced just over a year ago.

In April 2020, UK GDP fell by a record 20.4 per cent.

It is therefore encouraging that just ten months later and while operating under similar conditions, UK businesses have found a way to get their products and services to market.

However, despite the remarkable performance when compared with last spring, the UK economy remains 7.8 per cent below pre-pandemic levels and 3.1 per cent below the initial recovery peak in October 2020.

GDP growth in February was accentuated by a 1.6 per cent rise in the construction sector, which has been the best performing of all major British industries since the pandemic began.

Construction growth was linked to an increase in repair and maintenance work and an increase in new work, particularly in the public housing market, which grew by 13.5 per cent.

Previous ONS estimates showed that the construction sector had actually recovered to pre-pandemic levels in November 2020. But after subsequent lockdowns it is now 4.3 per cent below where it was exactly a year ago.

Elsewhere in the UK economy, the production sector grew by 1 per cent month-on-month, with manufacturing the largest contributor to expansion.

This was driven by an increase in the manufacture of motor vehicles, trailers and semi-trailers following two months of contraction.

The service sector also returned to growth in February but by a much more modest 0.2 per cent.

Services makes up the lion’s share of UK GDP and have been the worst affected by COVID-19.

The sector remains 8.8 per cent below pre-pandemic levels, with consumer-facing services such as retail, leisure and hospitality 18.6 per cent below where they were previously.

Taken together, the February GDP figures are striking in that they demonstrate the adaptability of the UK economy but also show just how far we have to go to get back to normal levels of output.

BCC head of economics, Suren Thiru, said: “The latest data confirms a modest return to growth in February. However, coming after a contraction in January, it does little to alter the prospect of a downbeat first quarter for the UK economy.

“The pick-up in output in February reflected a broad-based improvement in activity with all the main sectors recording an increase in growth. The clarity provided by February’s announcement of a roadmap for reopening also helped support output in the month.

“The release of pent-up demand following the easing of restrictions and the strong vaccine rollout will boost activity.

“However, hope of a sustained consumer-led revival may prove too optimistic as the economic scarring caused by COVID-19 may trigger a renewed reluctance to spend as government support winds down.”

On the international trade front, there is more to be optimistic about.

The February UK trade figures show that exports of goods to the EU increased by £3.7 billion (46.6 per cent) month-on-month.

This follows a record fall of £5.7 billion (-42 per cent) in January as the UK finally left the European Union.

The increase in exports to Europe were driven by machinery and transport equipment and chemicals, particularly cars and medicinal and pharmaceutical products.

EU imports also rebounded from January’s record lows, but by a more modest £1.2 billion (7.3 per cent).

Trade in services remained at a low level throughout February as services accounts such as travel and transport continued to be affected by COVID-19 restrictions.

Suren Thiru added: “Although there was a rebound in UK goods exports with the EU, this may reflect an unwinding of a number of temporary factors that weighed on the January outturn, including the running down of pre-Brexit stockpiling, rather than evidence of an underlying improvement in UK-EU trade flows.

“Businesses continue to encounter significant disruption and difficulty with many firms reporting serious structural issues which, if not addressed, will weigh on UK economic prospects for some time to come.

“The UK and the EU must get back around the table to thrash out the remaining structural problems in the UK-EU trade deal and focus on long-term improvements to the flow of trade between them.”

 

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