Economic Perspectives –
GDP falls nearly 10% in 2020 but, after first quarter weakness, should recover well in 2021
The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:
- GDP increased by a better-than-expected 1.0% (QOQ) in 2020Q4.
- Within the fourth quarter, December’s GDP grew by 1.2% (MOM) after the 2.3% (MOM) fall in November. December’s increase partly reflected strong growth in health (with the strongest contributions coming from the coronavirus testing and tracing schemes).
- GDP fell by 9.9% in 2020, with the largest falls in consumer facing services industries. The output of accommodation and food services fell by 44.0%.
- Even though the UK’s 2020 decline in GDP appears to be the worst of the major economies (bar Spain), the ONS once again pointed out that the UK’s methodology in calculating volumes of education and health were distorting international comparisons.
- The trade deficit deteriorated in 2020Q4, as imports rose by more than exports. There was some evidence of stockpiling ahead of the end of the transition period (31 December 2020).
- The European Commission’s Winter forecast was guardedly optimistic. After a weak start to 2021, economic recovery is expected to pick up during 2021, partly reflecting vaccination campaigns “gaining momentum”.
- Oil prices have continued to firm, exceeding $62pb (Brent crude), a 13-month high.
- Market expectations of negative interest rates have continued to weaken. And sterling has firmed, benefiting from the rapid vaccine rollout, as well as weakening expectations of negative interest rates and the UK/EU Trade and Cooperation Agreement (TCA).
Ruth Lea said “The fall of 9.9% in GDP in 2020 was much as expected. Last week the Bank assumed the vaccination programme should lead to the significant easing of Covid-related restrictions and a rapid economic recovery, after a weak first quarter. This seems perfectly reasonable and the economy should recover well in 2021. There are, of course, huge uncertainties attached to this scenario. Much will depend on the nature and timing of the easing of lockdown restrictions.”
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