UK Economy – at least it’s growing

This morning we wake to the news that the UK economy has grown for the third consecutive month. This really is good news, especially when you consider the headlines last month were about the technical recession. Although this growth is not yet enough to reverse the effects of a recession or even to take us out of one, as always it is the quarterly data that will dictate this.

Gross domestic product (GDP) grew by 6.6% in July 2020, as the easements of UK lockdown continued to boost output and spending, but the overall figures are still 11.8% behind the pre-coronavirus pandemic times of February 2020.

UK GDP 3 months to July

Although we are not at a quarter end, the three months to July does provide the first look without the hugely negative impacts of April 2020. April was the height of UK lockdown which saw GDP decline by a record breaking 20.1%.  The rolling three months to July saw GDP fall by 7.6% compared to the previous three months period (Feb-Apr).

Given the volatility of monthly data, sometimes the three-month average can provide a more constant view. The three-month average for July data shows positive growth of 5.9% compared to the three-month average to June. The growth is from an extremely low baseline as we know, following the COVID impacts. The fact that this is the most significant growth for any three-month average period throughout the whole of 2020 so far is reflective of the somewhat stagnant start to 2020 that the UK economy had even before the pandemic began.

Contributions to growth

All major sectors of the UK grew in July 2020, services outgrew production at a rate of 6.1% but still remains further behinds the February marker, at 12.6% smaller in July 2020.

Production output grew by 5.2% with manufacturing being a key contributor with growth of 6.3%. The month of July is the first time that all the subsectors of the industry saw growth following factory and site shutdowns and weak demand during lockdown.

Public administration and defence output saw marginal positive growth again across March, April, May, June and July 2020, which is a small but positive indicator.

Aerospace output is finally on the rise

The index of production data for aerospace manufacturing finally saw growth in July 2020 following four months of decline. Despite 13.6% growth on the previous month, manufacture production for the sector is still 23.6% below levels of February 2020.

The rolling three-month data also shows that aerospace manufacturing has seen a 20.7% decline on the previous three month period, which signals that this sector has been much slower to recover from the lock-down than others, despite many sites remaining open and partially operational during this time there is a lot of catching up to do.

When we compare the output of production for aerospace manufacturing to other key manufacturing sectors, automotive output is still the furthest behind pre-covid levels -30.2%, followed by aerospace, and then food manufacturing which is now only 3.7% behind February 2020 output. Pharmaceuticals continue to buck the trend and have grown 10% on February 2020 output, reflecting the increased demand for sector outputs during the pandemic.