Monthly GDP & International Trade (Aug.) - Capital Economics
UK Economics

Monthly GDP & International Trade (Aug.)

UK Data Response
Written by Ruth Gregory

The disappointing 2.1% m/m rise in GDP (consensus forecast 4.6%) adds to the evidence that the initial rebound in economic activity is running out of steam. And with new restrictions being imposed to curb the resurgence in COVID-19 cases, we think that a similar rise at best in September will be followed by no increase in GDP at all in the last three months of the year. The big risk now is more restrictions and a no deal Brexit send the recovery into reverse.

Recovery already flattening off in August

  • The disappointing 2.1% m/m rise in GDP (consensus forecast 4.6%) adds to the evidence that the initial rebound in economic activity is running out of steam. And with new restrictions being imposed to curb the resurgence in COVID-19 cases, we think that a similar rise at best in September will be followed by no increase in GDP at all in the last three months of the year. The big risk now is more restrictions and a no deal Brexit send the recovery into reverse.
  • The poor rebound in August meant that the economy was still 9.2% below its February peak. (See Chart 1.) Admittedly, a combination of “staycations” and the Eat Out to Help Out scheme helped activity in the accommodation and food services sector to rise by a whopping 71.4% m/m in August. This sector alone accounted for 1.25ppts of the 2.1% m/m rise in GDP. This comes on top of the gains in excess of 100% in the sector in June and July and left it 13.7% below its February level. The other big climber was education, which grew by 6.5% m/m in August, as the Office for National Statistics assumed a smooth recovery in education output over the summer before schools reopened in September. (See here.)
  • But there was virtually no increase in a few other services sectors, including finance and insurance (0.3% m/m), real estate (0.1% m/m) and public administration activity (0.2% m/m). (See Table 1.) And there are still four services sectors, travel agencies, air & rail transport and arts & entertainment, that have not yet recovered 50% of their previous falls. As a result, services output registered only a 2.4% m/m increase. The gains elsewhere were also disappointing. Construction output rose by 3.0% m/m, leaving it still 10.9% below its pre-crisis peak. And a dismal 0.7% m/m rise in manufacturing output resulted in only a 0.3% m/m rise in industrial production, despite output being still 8.5% and 6.0% respectively below their pre-crisis levels.
  • Meanwhile, August’s trade figures showed that the UK continued to run a trade surplus, although it narrowed slightly from £1.7bn in July to £1.4bn. We suspect the surplus will be eliminated later in the year, as imports recover from their steeper fall than exports.
  • The next few months will almost certainly be worse. We expect the new COVID-19 restrictions to mean that the economy does little more than move sideways in the final three months of the year, leaving economic activity marooned 7.5% short of its pre-crisis level. So while the economy has recouped 64% of the fall in GDP in four months, it may take until late-2022 to get back the remaining 36%. At least more policy support is likely to be forthcoming. Today the Chancellor will announce a revamped local furlough scheme for those businesses forced to shut by local lockdowns. And we think the Bank of England will yet expand QE by a further £250bn by the end of next year, with the next tranche of £100bn coming this November.

Chart 1: GDP (February 2020 = 100)

Source: Refinitiv

Table 1: GDP by Sector

Sector

% m/m

Level in Apr.

vs. Feb. (%)

Level in Aug.

vs. Feb. (%)

Apr.

May

Jun.

Jul.

Aug.

Electricity and gas

-7.0

0.5

4.3

3.5

1.6

-7.0

2.3

Water supply and sewage

-7.4

1.4

4.4

1.3

-0.1

-5.5

1.3

Public administration and defence

0.3

0.1

0.1

0.1

0.2

0.4

1.0

Wholesale, retail and motor repairs

-28.4

13.4

28.5

7.6

-0.2

-35.8

0.4

Real estate

-2.1

-0.5

0.0

0.7

0.1

-2.5

-2.3

Financial and insurance

-5.2

1.0

0.7

1.1

0.3

-5.6

-2.7

Mining and quarrying

-1.7

2.7

7.2

-1.4

-4.1

-7.2

-3.4

Agriculture

-6.0

0.8

3.2

0.1

-0.4

-7.7

-4.3

Information and communications

-10.8

-1.9

5.9

2.7

-0.4

-11.9

-6.4

Manufacturing

-25.1

7.8

12.0

6.9

0.7

-29.7

-8.5

Construction

-41.2

9.1

21.8

17.2

3.0

-44.4

-10.9

Professional, scientific and technical

-18.2

-2.1

7.6

3.6

0.7

-19.4

-11.4

Accommodation and food

-86.6

2.8

116.6

153.9

71.4

-91.1

-13.7

Education

-17.9

6.8

8.7

11.1

6.5

-37.9

-14.5

Transportation and storage

-30.1

7.3

17.8

6.0

2.6

-39.1

-16.4

Administration and support

-27.4

-1.0

14.1

4.4

1.3

-35.0

-22.4

Activities of households

-41.3

-2.8

11.9

15.5

9.2

-43.9

-23.0

Human health and social work

-21.7

1.4

2.2

4.4

2.1

-31.1

-23.9

Other service activities

-44.4

3.4

6.6

43.3

-1.8

-53.0

-27.0

Arts and entertainment

-37.1

-4.8

22.0

15.9

0.6

-46.9

-28.1

Total GDP

-19.5

2.7

9.1

6.4

2.1

-25.3

-9.2

Summary of Sectors

Agriculture

-6.0

0.8

3.2

0.1

-0.4

-7.7

-4.3

Industrial Production

-19.6

5.7

9.8

5.2

0.3

-23.3

-6.0

Services

-17.8

1.8

8.2

5.9

2.4

-24.4

-9.6

Construction

-41.2

9.1

21.8

17.2

3.0

-44.4

-10.9

Total GDP

-19.5

2.7

9.1

6.4

2.1

-25.3

-9.2

Sources: Refinitiv, Capital Economics


Ruth Gregory, Senior UK Economist, +44 7747 466451, ruth.gregory@capitaleconomics.com