No area of the UK economy has escaped unscathed since the start of the Covid-19 pandemic in March 2020. According to data from the Office of National Statistics, annual average GDP shrank by 9.9% in 2020, the largest yearly fall since records began. Output also experienced the largest annual decline on record, contracting by 9.1%. In addition, all four output sub-sectors saw annual falls, with construction dropping by 12.5%, agriculture by 9.4%, services by 8.9% and production by 8.6%. Three national lockdowns have been implemented following the onset of Covid-19 causing major disruptions in normal trading and factory operations, supply chains and consumer demand.
When Prime Minister Boris Johnson ordered a three-week lockdown to tackle the spread of the virus on 23 March 2020, few could have predicted that restrictions would last until June 2021 (at the earliest). With the public directed to stay at home, businesses forced to close, and millions of workers placed on furlough, the UK’s GDP contracted by 13.5% between the first and second quarters of 2020 – the largest quarterly contraction since records began in 1955. Exports fell by $19.4bn (£13.73bn) during the same period, with shrinking demand, widespread business closures and delays to export projects largely to blame. Construction output also dropped by $9bn between the first and second quarter of 2020, an unprecedented 32.8% decrease. Manufacturing output fell dramatically by 36.6% between March and April 2020, although it did improve substantially by June as lockdown measures eased. Retail sales also plummeted during the first lockdown, particularly in April 2020, due to the closure of non-essential shops.
In early November, national lockdown restrictions were reintroduced. Despite this, GDP rose by 13.9% between the second and fourth quarters of 2020. This can be attributed to growth in construction output, which increased by 48.4% during this time, and manufacturing output, which soared by 60.8% between April and November, as many plants and sites were made compatible with social distancing requirements. Retail sale volumes were markedly higher than the first lockdown, with a 31.5% increase between April and November. Although store closures due to government guidance caused sales to drop by 4.6% in November compared with October, the year-on-year growth rate in online sales increased, suggesting that consumers had brought forward Christmas spending. House prices hit a record average high of £325,535 in the fourth quarter of 2020, driven by pent-up demand as potential buyers were advised not to move during the tighter restrictions earlier in the year, as well as the stamp duty holiday introduced in July 2020.
However, the unemployment rate hit 5.1% in November 2020, a level that hadn’t been seen since February 2016. Job losses were most heavily concentrated among younger workers as well as those in the retail and hospitality sectors.
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The third lockdown is the deepest?
Following concerns that the tier system was not containing the spread of the new Covid variant, a third lockdown was implemented in early January 2021. During the third lockdown, GDP remained stable with only a 0.1% drop in the first quarter of 2021 compared with the previous quarter. Construction output fell by 4.5% during this period but was still up 41.6% on the amount recorded during the first lockdown. Manufacturing output dipped at the start of the third lockdown, falling by 14% between December 2020 and January 2021. However, it grew strongly in March, led by the machinery sub-sector. Retail sales fell 7.5% in January 2021 compared with the previous month but began to recover in February and March as restrictions began to ease, particularly for non-food and clothing shops. Automotive fuel retailers also reported strong monthly growth in March 2021 as travel restrictions were lifted.
The UK unemployment rate hit 5.1% in November 2020, a level that hadn’t been seen since February 2016.
Nevertheless, exports suffered, dropping by $8.7bn (-5.9%) compared with the previous quarter and decreasing more than they had during the first lockdown. Along with the impact of Covid, this can be attributed to the new trading relationship between the UK and EU coming into effect at the start of the year.
Overall, the UK economy appears to have suffered across the most metrics during the first lockdown, with the second lockdown’s short four-week implementation helping to minimise its impact across quarterly indicators. In addition, the vaccine roll-out, which began in December 2020, helped to restore consumer confidence by the third lockdown, as well as the extension of support measures. Many businesses are also continuing to adapt to ensure they are Covid secure. Looking ahead, the Bank of England forecasts that the UK is set for its strongest economic growth since the Second World War. However, as the phased exit out of lockdown continues, economists warn that the longer-term economic damage caused by Covid-19 may become more apparent as government support lessens.