UK Economy: Performance to date and outlook
Both the Office for National Statistics and the Bank of England have issued their respective reviews of the UK economy in November which on the face of it seems encouraging but on deeper analysis indicate deeper concerns for the UK economy for the final quarter of 2020 and into 2021.
There was much fanfare surrounding the recent ONS GDP results which indicated that UK GDP had increased by 15.5% in the latest quarter to 30 September 2020. However, UK plc is still 8.2% below February 2020 which was -0.2%. Furthermore, the 8.2% deficit reflects where the manufacturing sector is at present with the services sector some way behind.
Interestingly, since June, where GDP increased by 9.1%, subsequent months have seen smaller increases of 6.4% in July and 2.1% in August principally due to relaxing of lockdown, summer holidays and “eat out to help out” scheme.
September GDP growth was disappointing at 1.1% which was below expectations with schools and universities returning to classes. Furthermore, following a survey carried out in October, nearly 50% of businesses surveyed indicated that business activity was well below that experienced in October 2019.
Lastly, the Quarter 4 GDP outlook has been further derailed by the imposition of a second lockdown in November which experts are now estimating that Q4 UK GDP is likely to show a decrease of up to 3.5%. The recent good news on the likelihood of a vaccine being available sooner than expected has boosted worldwide stock markets particularly in the beleaguered aviation industry does add some confidence to future growth potential in 2021.
The Bank of England issued their outlook in early November 2020 with principal concerns around unemployment which at the current level of 4.5% is artificially low due to continuing government support but more concerning was that the Bank expected unemployment to rise to 7.5% following the close of the current government support schemes due to end on 31 March 2021. Their second concern centred around the length of the “adjustment period” following the UK’s exit from the EU single market and customs union which would be increased if the UK was unable to negotiate a Canada style free trade agreement with the EU.
My experience of UK SME’s is that they have responded quickly and adapted well to the changed economic landscape. Many have experienced temporary reductions in activity in March and April, but as many SME’s were agile, quick responding businesses, activity has largely returned up to 80-90% of prior levels in many cases which along with an increased focus on cost-cutting and operating efficiencies, has resulted in continuing, albeit it lower, profits in most cases. In fact, those with e-commerce selling capability, robust supply chains and robust working capital control have thrived in the new changed environment.
The most worrying aspect of my experience has been that future capital investment intentions remain weak as businesses, in addition to the economic dislocation caused by the pandemic remain uncertain regarding the future uncertainty surrounding a free trade agreement following the UK leaving the single market and customs union. Much media coverage has been given to large and small business stating that they need certainty regarding our relationships with the EU as these represent their largest trading partners and this is echoed by the CBI (Confederation of Business Industry) and SMMT (Society of Motor Manufacturers and Traders). The UK government must ensure that any dislocation surrounding our leaving the EU on 31 December 2020 is minimised by striking a deal with our EU partners so the UK plc can move on to resurrect the economy and return to sustainable GDP growth as soon as possible.
The above economic issues were debated in our online Kent Manufacturing Forum on Tuesday 17th November. If you feel that your business would benefit by attending our Forum, or need some advice and assistance regarding our forthcoming exit from the EU single market and customs union, please feel free to contact Rodney Sutton.
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