UK economic recovery from COVID second wave already underway

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3 min read
A pedestrian walks past a shuttered and closed-down branch of a River Island clothes store on Oxford Street in central London on March 24, 2021. - Britain's annual inflation rate unexpectedly fell in February as coronavirus curbs sparked heavy discounting for clothing and footwear, official data showed Wednesday, soothing market concerns over inflationary pressures. (Photo by JUSTIN TALLIS / AFP) (Photo by JUSTIN TALLIS/AFP via Getty Images)
A pedestrian walks past a shuttered and closed-down branch of a River Island clothes store on Oxford Street in central London on March 24, 2021. Photo: JUSTIN TALLIS/AFP via Getty Images

The early stages of UK economic recovery from the second wave of COVID-19 began months ago.

According to new data from the Office for National Statistics (ONS) published on Tuesday, Britain's economy grew marginally in February despite continued lockdown restrictions.

The ONS estimated UK GDP grew by 0.4% in February. Economists had predicted growth of 0.6%, following a contraction of 2.9% in January.

Although marginal and worse than forecast, the data signals the early stages of a recovery from a slump that began with November's lockdown. Economists expect the economy to grow again in March thanks to the reopening of schools, followed by rapid expansion from April onwards as more parts of the economy reopen.

"The clarity provided by February’s announcement of a roadmap for reopening also helped support output in the month," said Suren Thiru, head of economics at the British Chamber of Commerce (BCC). "The release of pent-up demand following the easing of restrictions and the strong vaccine rollout will boost activity. 

"However, hope of a sustained consumer-led revival may prove too optimistic as the economic scarring caused by Covid may trigger a renewed reluctance to spend as government support winds down.”

The ONS on Tuesday revised up its estimate of growth for January, saying it now believes the economy shrank by just 2.2% that month. Despite the upgrade, at the end of February the UK economy remained 7.8% smaller than it was a year ago and was 3.1% below the initial recovery peak reached last October.

The path of UK GDP. Photo: ONS
The path of UK GDP. Photo: ONS

February saw a revival in construction and manufacturing activity, while the UK's dominant services sector remained in the doldrums. Recent survey data suggests there has been a pick-up in service sector activity as businesses prepare for reopening. Construction and manufacturing are undergoing a mini-boom.

The return to growth comes despite continued harsh restrictions on the economy that saw non-essential businesses shut to the public. Businesses grown better at adapting to lockdown over the last year, lessening the economic impact each time.

Forecasters expect the UK economy to contract slightly overall during the first quarter of 2021 before a rapid bounce back. Vast swathes of the economy began reopening on Monday, with further easing scheduled in the coming weeks.

"We think that GDP rose by about 2% month-to-month in March, helping to limit the quarter-on-quarter drop in Q1 to 1.5%," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. "And with the rapid rollout of vaccines enabling restrictions on economic activity to be lifted sustainably this time, we continue to look for a 5% quarter-on-quarter jump in GDP in Q2."

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