UK economy shrank by 2.6% in November
The UK economy shrank by 2.6% in November as fresh lockdown restrictions came into place in England, according to the latest figures released by the Office for National Statistics (ONS).
The figures indicate the first monthly decline in GDP since April.
However, a GDP decline of 2.6% month-on-month in November represents a resilient performance given the extent of restrictions. November’s GDP fall was only one-seventh of the decline of 18.8% seen in April.
Significantly, November’s decline in GDP was entirely due to the services sector where output fell 3.4% month-on-month. The services sector was most affected by COVID-19 restrictions with many hospitality and leisure activities unavailable and non-essential retailers closed.
Impressively, both the manufacturing and construction sectors kept growing in November with respective month-on-month expansions of 0.7% and 1.9% (although overall industrial production edged down 0.1% month-on-month as the rise in output was countered by a fall in mining & quarrying output and energy output).
Lessons learned in keeping activity going in the previous lockdown have helped, while many manufacturing plants and construction sites have been made compatible with social distancing requirements.
On the expenditure side, it looks certain that consumer spending contracted in November given that retail sales volumes fell 3.8% month-on-month. There was clearly a decline in spending on consumer services due to hospitality and leisure closures.
Economic forecaster the EY ITEM Club suspects the economy could have seen a further GDP decline in December with restrictions still in place and tightening towards the end of the month.
The forecaster estmated that GDP contracted around 0.8% quarter-on-quarter in Q4 2020, half the 1.6% quarter-on-quarter fall previously anticipated for the quarter. This would result in overall 10.3% contraction in 2020.
Howard Archer, chief economic advisor to the EY ITEM Club, comments: “It’s no surprise that six consecutive months of economic growth came to an end in November, given the impact of that month’s English lockdown and other major restrictions on activity.
“That said, GDP contraction of 2.6% month-on-month in November looks to have been a resilient performance given the scale of the restrictions the economy faced. These included the closure of non-essential retailers as well as the shutting down of most of the hospitality and leisure sectors, as well as increased limits on people’s movements.
“November’s GDP contraction is less than one-seventh of the 18.8% month-on-month decline in GDP seen in April in the immediate aftermath of the lockdown which started at the end of March.
“It is notable that the UK economy had showed signs of losing momentum even before November as increased restrictions on activity amid rising COVID-19 cases affected October’s economic performance. Meanwhile, uncertainties over the future UK-EU relationship after 31 December were also likely to have affected the economy. Positively, near-term unemployment concerns had been eased by the extension of the furlough scheme through to March and, subsequently, April.”
He added: “Prior to November’s contraction, GDP growth had moderated to a five-month low of 0.6% in October from 1.1% in September, 2.1% in August, 6.5% in July and a peak of 9.3% in August. The three-month/three-month growth rate in GDP slowed to 4.1% in November from 10.5% in October and 16.0% in September.
“The year-on-year decline in GDP edged back out to 6.9% in November after narrowing to 6.8% in October from 7.1% in September, 8.1% in August. 10.0% in July and a record 24.6% in April.”
“GDP in November was 8.5% below its February level before the economy started contracting in response to the impact of COVID-19.”