Q1 2020 – UK Economy in decline

Yesterday the ONS released its first look data on the health of the UK economy for the first quarter of 2020. It is the first indication of how the COVID-19 pandemic has impacted on the UK economy. The figures, which are to be treated with caution as they are first estimates, suggest that there has been a significant shock to the economy.

January to March 2020 (Q1) saw GDP fall 2% compared to October to December 2019 (Q4) with large broad-based falls in output for production, services and construction.  The UK went into formal “lockdown” on 24 March 2020 which closed a large number of businesses and factories, however, many aspects of the economy had begun to close and slow earlier in the month.

The data does show an increase at this time in manufacturing for some consumer goods likely as a result of the effects of retail “panic buying’’.

Aerospace Production

Aerospace production and manufacturing started to feel effects of closures towards the end of March, and it is likely that we will see much of the real impact play out in April and in May as a somewhat lagged effect is felt by the sector and its supply chains.

The manufacturing of aerospace production index had seen 6 months of positive activity before March 2020, resulting in a 1% growth in Q1 2020. Aerospace service and repair sectors saw 7.3% growth in Q1 2020 compared to the previous quarter meaning the whole sector combined grew by about 4% looking at first estimates, down to a rise in domestic production and strong international demand in Q4 2019 and good start to 2020 before the COVID-19 pandemic took hold.

When compared to Q1 2019, manufacturing in aerospace production output was 2.3% lower in Q1 2020, and service and repair sector was 7.2% smaller in Q1 2020 than Q1 2019. Overall production output for the combined sector shrank 4.8% when comparing Q1 2019 to Q1 2020.  

Focus on March 2020

First estimates suggest UK GDP fell by 5.8% in the month of March, the largest fall since monthly records began in 1997. Production industries had a strong decline in output of 4.2% during March 2020. Aerospace manufacturing and production declined 1.8% during March 2020 which is -3.7% behind March 2019.

Looking ahead

There is an expectation that the true impact of COVID-19 on the UK economy will continue to play out for many months with widespread reduction in activity and entire sectors of the economy remaining closed. For Aerospace, we have seen production rates cut, and we will see more of this become apparent in April and May with a general expectation that Q2 will show the real shock to the UK economy.