Any regular readers of the ADS blog posts on the UK Economy will know we frequently warn against reading too much into monthly data releases, especially first estimates. But here I am again, blogging about the Office of National Statistics release this morning on UK GDP Growth in August 2020.
Given that we are still in the middle of a global pandemic, (in case you forgot!), the monthly news stories about the UK Economy growing may be welcomed by some. Many had been hoping that the UK recovery would be smooth sailing with forecast growth around 5-6%. August, by those expectations has disappointed with UK GDP growth of just 2.1%. The UK Economy remains 9.2% below February levels.
With many areas of the economy, and many regions still heavily suffering the impact of COVID and rising infection rates, localised lock downs are likely to continue to stifle recovery and growth for many sectors and the UK, growth will remain muted until the whole of the economy is reopened and could even head back in a negative direction if unemployment rates sore and industries are not supported.
Contributions to growth
The services sector was the main contributor to UK GDP growth in August 2020, up 2.4% on July, which is unsurprising as people were being encouraged to ‘eat out to help out’ as part of the Governments initiative. Although the production side of the economy also saw growth, this is minor in comparison at 0.3% growth on July, and far smaller than previous months growth rates.
Public administration and defence output saw marginal positive growth again for the six consecutive months up 0.2% which remains a small but positive indicator.
Aerospace output – weak growth lingers
The index of production data for aerospace manufacturing grew again in August 2020, but by a very modest 0.7%. This means the sector is still 27.7% below where it in February pre-COVID crisis. The Aerospace sector and subsequent supply chains have been warning that Q3 would always be the harshest test for the industry with orders from Q1 and Q2 somewhat drying up and very little signs of demand in the sector returning with many quarantine restrictions still in place impacting travel.
The three-month on three-month data is still showing signs of decline 12.5% lower in August, but as always, we look for the official quarterly figures next month to show how the impacts of a full six months of COVID chaos and restrictions has really impacted output from out sector.
Elsewhere in Manufacturing – monthly data fluctuates
In a surprising turn of trend, pharmaceuticals has actually declined in output for this month by 2.3% but given the usual volatility of this sector and the fact these are first estimates, it probably isn’t worth reding too much into. Automotive manufacturing continue to grow incrementally at 3.8% but more recent reports suggest September figures will struggle with the lowest ever registration figures.
We await quarterly data to make any more serious estimates about the future recovery for our major industries and the UK economy, but the weak growth and current consumer sentiment suggests a recession could again be on the cards.