MNI DATA IMPACT: Better UK Q4 GDP, 2020 Fall Largest On Record

UK output rebounded smartly in the closing months of last year, but the bigger-than-expected gain failed to prevent a largest annual fall on record in 2020, according to data released on Friday by the Office for National Statistics.

GDP jumped by 1.0% in the fourth quarter, far exceeding the 0.5% gain forecast by the Bank of England in last week's Monetary Policy report. U.S. output fell by 1.0% over the same period, while the eurozone shrank by 0.7%.

Over the course of 2020, the economy plunged by 9.9%, the biggest-ever decline in a series dating back to 1948, more than double the previous record of a 4.1% fall in 2009. That's much more severe than the 6.8% annual decline in the eurozone and the 3.5% fall recorded in the U.S. However, the national statisticians believe that more accurate measurement of healthcare and education in the U.K. could account for the exaggerated decline in relation to other developed countries, as reported by MNI previously.

Output increased by 1.2% in December, outpacing expectations, however much of the economy was under an economic lockdown in November, making for an easier monthly comparison. GDP declined by 6.5% over December of 2020.

Services grew by a less-than-expected 0.6% in Q4, contributing 0.46 percentage points to total growth. Construction expended by 4.6% (adding 0.30pp to GDP), while manufacturing increased by 3.3% (adding 0.32pp).

Business investment rose by 1.3% in Q4, in line with expectations, but remained 10.3% below year-ago levels. Household spending declined by 0.2% over the closing months of the year (down 8.4% over Q4 of 2019), while government spending increased by 6.4%, adding 1.27 percentage points to total growth.

Services jumped by 1.7% between November and December, boosted in part by Covid test-and-trace activity in the final month of the year. Manufacturing rose by just 0.3%, the worst monthly performance since April. Total production increased 0.2%, while construction fell by 2.9%, the first decline since April.

Output for November was revised slightly higher, declining by 2.3%, better than the originally-reported 2.5% fall. Monthly revisions have tended to be upward "on balance," according to an ONS official, adding that revisions have generally been smaller than statisticians expected.

The response rate for the December series was down only slightly from the average December, with the ONS receiving 68.7% of response (measured by turnover), down from the historical average of approximately 70%. The non-responses were concentrated in the construction sector, according to statisticians.

The headline trade deficit jumped to GBP17.517 billion in the fourth quarter from GBP3.897 billion previously, the biggest shortfall since Q1 2019. Net trade subtracted 2.51 percentage points from GDP growth.

Excluding non-monetary gold, the deficit expanded to GBP14.287 billion, the biggest shortfall in a series dating back to 1997, from a GBP3.402 billion shortfall in Q3.