ONS COVID-19 Briefing: Coronavirus and the impact on the UK economy

Analysis of monthly growth for the production, services and construction industries in the UK economy between November and December 2020, highlighting the impact from the coronavirus (COVID-19) pandemic.

Key Points

  • Monthly gross domestic product (GDP) increased by 1.2% during December 2020 but remained 6.3% below February 2020 levels.
  • In December 2020, services grew by 1.7% following the easing of restrictions in many parts of the UK early in the month, while construction fell by 2.9%; production and manufacturing growth was more subdued at 0.2% and 0.3% respectively.
  • Quarter 4 (Oct to Dec) 2020 saw a rise of 1.0% in GDP following a rise of 16.1% in Quarter 3 (July to Sept) 2020; however, GDP in Quarter 4 2020 was 6.6% below Quarter 4 2019 levels.
  • In Quarter 4 2020, there were rises from each of the main components, with services at 0.6%, production at 1.8% and construction at 4.6%.
  • In 2020, headline GDP declined by 9.9%, which is more than twice the fall in 2009.

Context

The UK economy during the COVID-19 pandemic

Monthly gross domestic product (GDP) in December 2020 was 6.3% below the level of February 2020, having increased by 1.2% compared with November 2020.

Services activity increased in the first half of December 2020 following the relaxation of business restrictions, which had negatively affected November 2020. However, restrictions were tightened again later in December 2020.

This impacted growth at industry level and respondent evidence suggested this was most significant in some services industries. However, manufacturing grew more slowly, and construction industries saw a widespread fall.

The output of:

  • services industries remained 6.9% below the level of February 2020, growing by 1.7% in the latest month
  • production industries remained 3.6% below their February 2020 level, growing by 0.2% in the latest month
  • manufacturing has declined by 3.4% since February 2020, growing by 0.3% during November 2020
  • the construction industry has declined by 3.4% since February 2020, falling by 2.9% in the latest month

Services

Services grew in December 2020 by 1.7%, a partial bounce back from the 3.1% fall seen in November 2020.

The percentage of businesses reporting zero turnover in our survey during December 2020 was 7.9%, an improvement on the 8.1% reported in November 2020 but higher than the pre-pandemic level of 6.1% during February 2020.

In December 2020, services output was 6.9% below its February 2020 level, with 12 of the 51 services industries having surpassed their level of output compared with February 2020. This was led by postal and courier services. In contrast, six services industries remained below 50% of their February 2020 level, with air transport and travel agents performing the weakest.

Manufacturing

Manufacturing recorded its eighth consecutive monthly growth, although this was its weakest since May 2020. Strength was widespread but boosted by chemicals production.

Manufacturing output was 3.4% weaker than the February 2020 level. In December 2020, 20 of the 44 manufacturing industries surpassed their level of output in February 2020, led by other chemicals. Four industries failed to reach 80% of their February 2020 level of output, with aircraft maintenance performing the weakest.

Services industries

The output of services industries grew by 1.7% during December 2020 and was 6.9% below the level of February 2020.

Of the 14 sub-sectors, 11 saw growth during December 2020. This was led by accommodation and food service activities, wholesale, retail and motor trades, and other service activities, and accounted for over half the growth in services. These three sectors also largely contributed to the decline in November 2020 because of the different lockdown measures in place across parts of the UK.

Wholesale and retail trade: repair of motor vehicles - Retail grew by 0.3% during December 2020, with output 2.7% above February 2020 levels for the industry. Motor trades grew by 12.3% in December 2020, with output 9.0% below February 2020 levels. Wholesale (excluding motor vehicles) fell by 1.0% during December 2020 and remained 3.5% below February 2020 levels.

Accommodation and food and beverage services - This sector grew by 25.2% in December 2020, following a fall of 44.5% in November 2020. This resulted in output in the latest month being 55.6% weaker than the February 2020 level. Food and beverage services, which includes restaurants, cafes, takeaways, pubs, canteens, and catering, grew by 27.2% in December 2020. Hotels and accommodation similarly increased by 17.0% during December 2020, led by stronger growth from hotels, compared with camping and caravan sites and other accommodation. Hotels and accommodation was 73.3% below its February 2020 level.

Arts, entertainment and recreation - This sector saw growth of 6.7% in December 2020 and was 28.7% below its February 2020 level. Strength was led by sports activities and amusement and recreation activities, which grew by 15.6% in December 2020. Creative, arts and entertainment activities saw growth of 6.6%. This industry was now 60.7% below its February 2020 level.

Other service activities - The other service activities sector saw growth of 18.0% in December 2020, driven by an increase in other personal service activities of 36.9%. This was led by hair and beauty. This strength is largely driven by a bounce back from the low level seen in November 2020, because of business restrictions being lifted in many parts of the UK.

Transportation and storage - The transportation and storage sector saw a growth of 3.1% in December 2020, with output 9.7% below February 2020 levels.

The growth in this sector was led by postal and courier activities, with growth of 5.8%. Warehousing and support activities for transportation also had a strong month, with 2.5% growth. Strength across both industries was because of a continued expansion in online sales.

Professional, scientific and technical activities - The largest contribution to growth in this sector came from scientific research and development, which grew by 5.7% in December 2020; this industry was now 7.8% above its February 2020 level.

While some of the growth in this industry may be attributed to increased research and development because of the coronavirus, the majority was still related to research and development in other areas of healthcare.

Other notable growth - Employment activities grew by 2.3% in December 2020. While evidence suggested weakness from employment agencies in general, strong growth from specific industries such as retail, warehousing and courier services boosted this industry during December 2020.

Education fell by 1.0% in December 2020; this decline was related to a decrease in attendance compared with November 2020 as well as a decline from universities. This sector was 7.2% below February 2020 levels.

Production industries

Production output increased during December 2020 by 0.2%, with positive contributions from manufacturing, electricity and gas, and water and waste, partially offset by a negative contribution from mining and quarrying.

Production output during December 2020 continued to be affected by the COVID-19 pandemic, and it was 3.6% below the level of February 2020, the last full month of “normal” operating conditions.

Production output increased for the eighth consecutive period, primarily because of continued growth from manufacturing since April 2020.

Manufacturing output grew during December 2020 by 0.3%, with 8 of the 13 sub-sectors displaying upward contributions. This was led by a strong upward contribution from chemicals and chemical products. In contrast, lower demand for alcoholic beverages from the hospitality sector was responsible for a strong negative contribution from food products, beverages and tobacco. This placed a drag on manufacturing growth during December 2020.

Despite being the eighth consecutive monthly growth since April 2020, manufacturing output was 3.4% below the level of February 2020.

Food products - The food products industries were 2.2% weaker in December 2020 than in February 2020, with the other food products category (this includes sugar, tea and coffee processing, manufacture of prepared meals, condiments, and seasonings) the hardest hit.

Alcoholic beverages and soft drinks - There was a fall of 11.2% for this industry during December 2020. We received responder-led evidence that decreased output from both the alcoholic beverages and soft drinks industries was reflective of the continued downturn in demand from the hospitality sector, with tightened restrictions across the UK during the latter part of December 2020. This followed the strong decline during November 2020 because of the closure of hospitality across England.

Output was 27.1% weaker in December 2020 than in February 2020.

Wood and wood products except furniture - Following notable growth over recent months, the wood and wood products except furniture industry fell by 4.2% during December 2020, following a very high November 2020. The monthly decline may also be linked to the fall in construction output during December 2020.

Output was 6.4% above its February 2020 level, primarily because of increased demand from the construction sector amid the ongoing recovery and evidence of increased demand for DIY products as people spent more time making home improvements.

Chemicals and chemical products - The chemicals and chemical products sector displayed the strongest monthly growth since March 2020 and has strengthened to 14.5% above February 2020 levels.

Output rose by 5.5% during December 2020, led by a strong contribution from the other chemical products industry, which rose by 22.0%. Strength here came from activities associated with COVID-19 testing.

Basic pharmaceutical products - The monthly rise of 0.2% highlights the volatile nature of growth in the basic pharmaceutical products industry, following a fall of 2.5% during November 2020. Because of the volatility in monthly growth, output during December 2020 was only 0.2% above its February 2020 level.

Transport equipment - Sector-level growth of 0.9% during December 2020 continued the recovery of transport equipment, but this should be noted in the context of output being 10.8% weaker than in February 2020.

Monthly strength was by an export-led rise from motor vehicles, trailers and semi-trailers. This industry displayed a rise of 0.7% and resulted in output at 4.4% above the February 2020 level. Additionally, the index is at its highest level since October 2019. However, this industry had declined prior to the pandemic, with output during December 2020 at 3.6% below the most recent peak in June 2019.

Mining and quarrying - Sector-level growth fell by 0.9% during December 2020, driven by a fall of 0.7% from oil and gas extraction. Note that this estimate is provisional based on lower than usual response, so may be subject to revision.

The decline in oil and gas extraction over recent periods is because of a slump in oil prices earlier in the pandemic, amid tightened restrictions impacting on demand. This has resulted in output at 13.8% below its February 2020 level.

Construction

Monthly construction output decreased by 2.9% in December 2020 compared with November 2020, falling to £13,516 million. This was because of falls of 3.8% in new work and 1.5% in repair and maintenance. This is the first decline in monthly growth since April 2020 when it fell by a record 40.7% and took the level of construction output to the lowest level since August 2020 when it was £13,181 million.