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UK economy back to growth ahead of predicted spending spree

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13/04/2021
The UK economy grew by 0.4% in February, new data from the Office for National Statistics (ONS) has revealed.

The return to growth followed a sharp drop of 2.2% in January recorded by the ONS, though it’s notable that it was still down by 7.8% from February 2020.

The ONS found that the service sector grew by 0.2% over the month, pointing to a “little” pick up in wholesale and retail trade sales, though this was far lower than the jump of 1.6% seen in the construction sector. This was driven by growth in both new work projects and repair and maintenance.

Meanwhile, output in the production sector increased by 1%, while manufacturing grew by 1.3% over the month.

Learning lessons

Howard Archer, chief economic advisor to the EY Item Club, argued that the figures show the economy is being affected less by lockdown measures than was originally the case, which suggested lessons had been learned and experience gained in how to keep activity going. 

He added: “Companies and employees have got used to home working and, significantly, many workplaces, offices, sites and plants have been adjusted to meet Covid-19 social distancing requirements so that employees can continue to work on site.”

Archer said that with confidence on the rise, EY Item Club was revising its GDP forecast for 2021 to a much higher 5%, continuing: “The economy is expected to benefit progressively from the second quarter as restrictions on activity are eased, supported by the rapid roll-out of Covid-19 vaccines.”

Time for a spending spree

Danni Hewson, financial analyst at AJ Bell, said that whole there was still lots of ground to make up, the images of packed pub gardens and lengthy queues on the nation’s highstreets suggested that many people were set to put restrictions behind them and embark on a spending spree.

She added: “There is also small comfort to be had in February’s trade figures. Exports to the EU which dropped so dramatically off a cliff in January have bungeed back up, though they are still £2bn down on pre-Brexit levels. Notably imports from the EU were less resilient and remain more than £5bn down. It’s clear there are still issues but many of those will have been exacerbated by lockdown restrictions, something which will undoubtedly continue further into the spring.”

Robert Alster, CIO at Close Brothers Asset Management, agreed that growth will be driven by spending and corporate investment, but argued the true state of the jobs market remains a big unknown.

He continued: “The furlough scheme will phase out from July to September, and it’s unclear whether businesses will re-hire all their workers.  In a worst case scenario, a sustained rise in unemployment could undermine a strong UK recovery.”

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