MNI DATA IMPACT: UK GDP Down Less Than Feared; EU Trade Slumps

UK output fell by the biggest margin since April, but still exceeded expectations, while imports and exports to the EU fell off a cliff after the exit from the transitional trading arrangement, data released on Friday by the Office for National Statistics showed.

GDP fell by 2.9% between December and January, the biggest decline since April, but still better than the 4.9% drop predicted by City analysts. That leaves GDP 9.0% below February 2020.

Underlying goods exports (excluding non-monetary gold and other precious metals) to the EU plunged by 40.7% in the first month after the UK left its transitional trade arrangement, while imports from the EU declined by 28.8%. Statisticians pointed to a multitude of factors, including Brexit effects, Covid-related barriers and the unwinding of stockpiling, but noted that trade flows improved by the latter portion of the month.

Construction was the only output category to expand in January, rising by 0.9%, boosted by new work. The sector has recovered more quickly than production or services, standing just 2.6% below pre-pandemic levels.

Services dropped by 3.5%, dampened by falls across the sector, shaving 1.9 percentage points from output, but still outpacing expectations of a 5.5% decline. So-called "other services," which include hairdressers and personal care, declined by 30.5% in January, subtracting 0.29 percentage points from total output. Services remain 10.2% below pre-pandemic levels.

Manufacturing slumped by 2.3%, marking the first fall since April, taking the sector 5.7% below February levels. Total production declined by 1.0% (down 5.0% from February). Both outturns were worse than expected.

The headline trade deficit declined to GBP1.630 billion in January from GBP8.202 billion in December. Excluding non-monetary gold, the headline shortfall narrowed to GBP1.916 billion from GBP5.598 billion.