Growth figures suggest that the UK economy may recover from the Covid-19 pandemic sooner than expected.
2020 has been a challenging year so far. The first part of the year saw the economy shrink by almost a quarter, as the pandemic hit and restrictions were put in place.
Since then, the economy has mostly been improving but has far from recovered. This Insight looks at where we are now, compared to before the pandemic.
Overall, monthly GDP fell to 75% of its 2019 average level in April. By September it was back to 92% of what it was, as the chart below shows.
Employment, self-employment and vacancies remain down
In October 2020, the number of payroll (employee) jobs was 2.3% down on the average for 2019. The fall varies across regions and nations of the UK, as the charts below show. London was particularly hard hit, with the number of jobs down by 4.1%.
This total number of jobs includes furloughed jobs. In the second half of October, 9% of the workforce were on partial or full furlough leave according to Office for National Statistics (ONS) survey data. The Bank of England assume that around 19% of jobs will be furloughed in November.
Self-employment was also down by 10% in July-September, compared with October-December last year, according to the ONS. Some of this change is due to individuals reporting themselves as employed, rather than self-employed.
ONS data also shows the number of job vacancies is down to around two-thirds of what it was, comparing August-October 2020 with the same period in 2019. Vacancies are down across businesses of every size, but larger businesses have seen the biggest percentage falls.
For more on the labour market, including the groups most affected, see Coronavirus: Impact on the labour market.
Most businesses are trading but profits are down
In the second half of October, 82% of businesses told the ONS they were currently trading, with the rest mostly having temporarily closed or ‘paused’, and a few permanently stopped. Larger businesses were more likely to be currently trading.
Of businesses that are currently trading, 47% said their profits were down compared with what they normally expect for this time of year, 31% said they were normal, and 8% said their profits were up on what they’d normally expect. 14% of businesses had no or low confidence they would survive the next three months.
The effect of the pandemic varies widely across, and sometimes within, industries. As the charts below show, most industries saw some kind of shock, but the depth of the shock and the extent of recovery is mixed.
By September, wholesale and retail had returned to similar levels of output to those seen in 2019. In contrast the arts, entertainment and recreation sector was still 24% below its 2019 level.
The Spending Review is due
Coming into November, we saw coronavirus infections rising and further economic restrictions put in place.
On Wednesday 25 November, the Office for Budget Responsibility will publish its forecasts for the economy and the public finances for the next few years. Forecasting, and indeed just measuring, the economy is particularly challenging now, due to the uncertainties of the pandemic, pandemic response and the future relationship with the EU all weighing in, both in the short and long terms. Earlier this month the Bank of England forecast UK GDP growth of -11% in 2020 and +7¼% in 2021.
Also on 25 November, the Chancellor will issue his Spending Review, setting out budgets for government departments for the next year.
The Chancellor said the Spending Review will focus on employment, public services and infrastructure. The Review comes in the context of exceptionally high public spending to support the economy and public services through the pandemic, and levels of debt – now over 100% of GDP.
Economic Indicators, House of Commons Library
Background to the 2020 Spending Review, House of Commons Library.
Coronavirus: Economic impact, House of Commons Library
About the author: Lorna Booth is head of the Economic Policy and Statistics Research Section at the House of Commons Library.
Forecasts for growth this year have been raised and confidence in the economy among households and businesses has improved.
This Insight looks at the impact the pandemic continues to have on the economy, and discusses possible signs of recovery.