Winter Lockdown and UK Economy in decline Q1 2021

This time last year we started to see the impacts of COVID-19 on the economy, with March 2020 being the start of economic and social restrictions in the UK. On the latest figures, the UK economy is now 5.9% smaller than it was pre-pandemic in February 2020.

The headlines from today’s releases are that Q1 2021 saw the economy shrink by 1.5% on Q4 2020.  There had been 1% growth in Q4 2020 according to revisions to the data, which was wiped out when new restrictions came into force for the start of this year.  However, with schools re-opening and the UK gearing up for the easing of some restrictions, March saw monthly GDP growth of 2.1%. This is encouraging and a signal that there is pent up demand in the economy, which should continue if vaccination rates continue to rise steadily, and COVID-19 infections and deaths continue to fall as the UK starts to re-open.

Production output also grew in the month of March by 1.8%, driven mostly by the increase in manufacturing output, which grew 2.1%. However, the quarterly figures remain subdued owing to some production drop off in January as firms were adjusting to the implementation of new trading rules following the end of the Brexit transition period. Production output in Q12021 fell by -0.4% compared with Q4 2020 and remains -1.8% below the level of February 2020.

Manufacturing output continues to grow but remains below pre-pandemic levels

Despite manufacturing leading the monthly growth in production output, levels remain 2.2% below where they were in February 2020. In late March 2020, we saw major disruption to manufacturing output and trade as the UK as the government’s work from home directive started, the national lockdown was put in place and generally whole parts of the economy were closed. Fast forward one year, and 10 out of 13 subsectors experienced growth in March.

The production output data shows that aerospace manufacturing remains considerably behind a number of other manufacturing sectors in terms of output levels. Compared to this time last year, the Food manufacturing sector is -4.4% below where it was in March 2020, the pharmaceutical sector, which has had a volatile year, is -3.3% below March 2020 output levels and the Automotive, which saw factory shutdowns in March 2020 is actually 36.5% bigger in March 2021 than it was March 2020, but is still down 7.1% on February 2020.

Aerospace continues to lag behind other manufacturing sectors

Aerospace manufacturing output was 36.8% smaller in March 2021 compared to March 2020, which puts the sector production output at 40.1% below pre-pandemic levels. Severe travel restrictions have remained in place in the UK for a number of months now with new countries being added to the red list on a regular basis. The impact of global travel restrictions will continue to impact UK aerospace manufacturing for many months, but ADS has welcomed the UK governments roadmap out of lockdown that includes the easement of a total travel ban from mid-May onwards.

The month of March saw aerospace manufacturing output decline by a further 1%, with Q1 2021 seeing a decline of 5.3% compared to Q4 2020, showing that the output is continuing to slowly decline. Aerospace repair and maintenance production output has struggled with fewer aircraft flying and the levels have remained low since April 2020 and are currently 46% below pre-pandemic levels.

The quarterly comparison chart of key manufacturing shows how the aerospace sector is on a difficult trend, remaining below other sectors and trending downwards. Expectations for a recovery in the coming months are linked to more domestic travel and demand for single-aisle aircraft. However, UK manufacturing needs to see the return of international travel in order to start a recovery in terms of production output, owing to greater UK exposures with wide-body aircraft.