Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674
Email: ruthlea@arbuthnot.co.uk

 

From the desk of Ruth Lea

Economic insight and financial comment related to the ever-changing financial landscape and the economic world at large.

Economic Perspectives

12th April 2021

Economic Insight - 12 April 2021

Lockdown restrictions eased today whilst surveys suggest March saw firm growth
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:
Press Release

Lockdown restrictions eased today whilst surveys suggest March saw firm growth

Date: 12th April 2021

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:
  • Lockdown restrictions are to be eased on 12 April, as England moves to “step 2”.
  • The Markit surveys for March were all positive, and suggested that growth accelerated in the month for manufacturing and construction, whilst services returned to growth.
  • The SMMT reported that car registrations in March were 11.5% higher than in March 2020, but were still nearly 37% down on the 10-year average for the month.
  • The Halifax reported that house prices jumped by 1.1% (MOM) in March to be 6.5% higher YOY, bolstered by Government support measures and the extended stamp duty holiday.
International news:
  • The IMF’s forecasts in its April World Economic Outlook were more optimistic than in January. Global growth of 6.0% is now projected for 2021, followed 4.4% in 2022. US growth, bolstered by fiscal support packages, is expected to be a buoyant 6.4% in 2021, whilst the Eurozone may grow by 4.4% this year. The IMF now expects the UK to grow by 5.3% in 2021, followed by 5.1% in 2022. In addition, China is projected to grow by 8.4% in 2021 and India by 12.5% (after an 8.0% drop in 2020).
  • The IMF’s Fiscal Monitor pinpointed the impact on the public finances of the COVID pandemic and Government responses. It estimated that US borrowing as a % of GDP rose to 15.8% in 2020 and may still be as high as 15.0% in 2021. In the Eurozone the borrowing/GDP ratio rose to 7.6% in 2020, within which the ratio increased to 4.2% for Germany, 9.9% for France and 9.5% for Italy. The ratio for the UK is estimated to have been 13.4% for 2020, and may still be as high as 11.8% in 2021.
  • US President Biden announced a $2tn infrastructure and economic recovery plan on 31 March 2021, to be part-funded by a proposed increase in the corporate tax rate to 28%.
  • The US labour market strengthened in March. Nonfarm payrolls rose by 916,000 in March, driven by re-openings at restaurants, bars, construction sites and schools. The unemployment rate fell to 6.0%.
  • The German Federal Constitutional Court (26 March) delayed Germany’s ratification of the EU’s Next Generation EU (NGEU) COVID-recovery fund, whilst looking into legal challenges against the debt-financed programmes.
Ruth Lea said “Today’s relaxation of the lockdown measures will be especially welcomed by, for example, non-essential retail and “close contact” personal care premises (such as hairdressers and nail salons). But it is still expected that hospitality venues (pubs and restaurants) will have to wait until mid-May before they can operate indoors. In the meantime, the Markit surveys suggested a significant bounce in private sector activity in March. In particular, the services sector returned to growth, partly reflecting stronger client demand and forward bookings ahead of the anticipated easing of lockdown measures.”

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html 

Press enquiries:

Arbuthnot Banking Group PLC: 

Ruth Lea, Economic Adviser 
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk 
Follow Ruth on Twitter @RuthLeaEcon

Maitland: 
Sam Cartwright 
020 7379 4415
arbuthnot@maitland.co.uk

Download full article

6th April 2021

Economic Insight - 6 April 2021

Record household savings in 2020: ready to boost the economy when lockdown lifted
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:
Press Release

Record household savings in 2020: ready to boost the economy when lockdown lifted

Date: 6th April 2021

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:
  • The ONS made a very modest revision to GDP for the year 2020, to show an annual fall of 9.8% compared with the previous estimate of 9.9%.
  • The household sector’s saving ratio leapt to a record high of 16.3% in 2020, as household consumption fell back, compared with 2019’s 6.8%.
  • The current account of the balance of payments deficit widened in 2020Q4, mainly reflecting a worsening goods deficit. Imports were especially high ahead of the end of the transition period.
  • Households continued to make net repayments of consumer credit in February (£1.2bn).
  • Net mortgage borrowing remained strong in February (£6.2bn, the strongest since March 2016) whilst mortgage approvals for house purchase was a high 87,700 in February.
  • Broad money (M4ex) rose £15.8bn in February, driven by a rise in households’ deposits of £17.1bn (MOM). The M4ex growth rate was 15.2% (YOY) in February.
  • In the 12-months to February 2021, money holdings of the household sector rose by nearly £180bn, whilst money holdings of private non-financial companies (PNFCs) rose by around £125bn.
  • Nationwide reported that house prices fell by 0.2% (MOM) in March and were 5.7% higher YOY (down from 6.9% in February).
  • The SMMT reported that car production in February was 14% down YOY, the weakest February performance in more than a decade.
Ruth Lea said “The latest data on the saving ratio and increased money holdings of the household sector confirm that households are holding record savings. It is more than likely that a good proportion of these increased savings is likely to be spent, when lockdown is lifted, boosting household consumption and hence GDP. Bank Chief Economist Andy Haldane’s recent remark that the UK economy is like a ‘coiled spring’ ready to release large amounts of ‘pent-up financial energy’, after the easing of restrictions, seems perfectly reasonable.”

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html 

Press enquiries:

Arbuthnot Banking Group PLC: 

Ruth Lea, Economic Adviser 
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk 
Follow Ruth on Twitter @RuthLeaEcon

Maitland: 
Sam Cartwright 
020 7379 4415
arbuthnot@maitland.co.uk

Download full article

12345678 (2020)(2019)

Comment, at a glance

Labour productivity (output per hour) fell 4.3% (QOQ) in 2020Q4
14 April 2021

The ONS has released its main productivity estimates for 2020Q4:
·       Output per hour (the preferred measure of labour productivity, “productivity hours”) fell 4.3% (QOQ) in 2020Q4, after a 6.5% rise in 2020Q3, as total hours worked rose faster in the quarter than gross value added (GVA). Total hours worked increased by 5.8% (QOQ) whilst GVA increased by 1.3% (QOQ) in 2020Q4. The YOY decrease was 0.7%.
·       Output per worker rose by 1.6% (QOQ) in 2020Q4, but was still 5.9% lower YOY, reflecting workers remaining employed though the Coronavirus Job Retention Scheme (CJRS, otherwise known as furlough), while working zero or reduced hours. Employment fell by around 0.35% (QOQ).
·       The large disparities between the YOY output per hour data (-0.7%) and the YOY output per worker (-5.9%) is explained by employment only falling 1.6% (YOY), whilst the total number of hours worked fell by 6.8% (YOY).

Unit labour costs rose by 2.4% (QOQ) in 2020Q4, to be 7.2% higher YOY.

Source: ONS, “Productivity economic commentary, UK: 2020Q4”, 14 April 2021.

 

 

 

 

 

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Total trade (goods & services) deficit widened to £7.1bn in February
13 April 2021

The total trade (goods & services, including precious metals) deficit widened to £7.1bn in February 2021, compared with a deficit of £3.4bn in January (table 1). The ONS emphasised that the monthly data were very erratic, with trade with the EU, in particular, affected by the end of the transition period (31 December 2020). They commented that the EU data probably reflected the hangover from stockpiling ahead of the end of the EU transition period and disruption after the end of the transition period, as well as the ongoing impact of the pandemic including reduced demand, and global supply issues.   

Concerning visible trade (goods, including precious metals):
·       The visible (goods) deficit widened to £16.4bn (from £12.6bn), as exports rose by 9.9% (MOM) whilst imports rose by 17.4%. The improvement in the EU deficit was more than offset by the deterioration in the non-EU deficit.
·       The deficit with the EU narrowed further to £5.7bn (from £8.1bn), as exports jumped by 46.6% (MOM), whilst imports rose by a more modest 7.8% (table 2). The increases in exports were driven by machinery and transport equipment and chemicals, particularly cars and medicinal and pharmaceutical products. The increases in imports were driven by machinery and transport equipment, and chemicals, particularly cars and medicinal and pharmaceutical products.
·       The deficit with non-EU countries, on the other hand, widened to £10.7bn (from £4.5bn) (table 2). Exports actually fell by 10.5% (MOM), whilst imports rose 25.6%. The monthly data are very erratic. There was a large increase in the imports of precious metals.

Concerning services, the surplus modestly improved to £9.3bn (from £9.2bn), as exports grew by 0.8% (MOM), whilst imports grew by 0.6%. The ONS commented that trade in services imports and exports have consistently remained at a lower level since 2020Q2 as services accounts such as travel and transport trade continue to be affected by coronavirus (COVID-19) restrictions.

In volume terms, the total trade balance (goods and services), widened to a £3.8bn deficit in February (from January’s £2.6bn), as imports rose more than exports (table 11). This would act as a drag on GDP, other things being equal.

The ONS pointed out that the goods data were distorted by movements in precious metals (including non-monetary gold (NMG)) and they published an “underlying” series, excluding precious metals (table 9):
·       There was an “underlying” total trade deficit of £1.4bn in February (£0.8bn in January).
·       Within the total, the underlying goods deficit widened to £10.7bn (£10.1bn in January). 
·       Footnote: precious metals recorded a deficit of £5.7bn in February, compared with a deficit of £2.5bn in the previous month.  

Source: ONS, “UK trade: February 2021”, 13 April 2021.

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GDP rose 0.4% in February, after January’s 2.2% fall
13 April 2021

GDP increased by a better-than-expected 0.4% (MOM) in February, during which government restrictions affecting economic activity remained broadly unchanged. This followed the 2.2% MOM fall (revised from 2.9%) in January. GDP was, however, still 7.8% below the levels seen in February 2020 (YOY, pre-pandemic), and 3.1% below October 2020 (the initial recovery peak).

Concerning the industrial breakdown (tables GVA1-3):

·       The services sector grew by 0.2% (MOM), as wholesale and retail trade sales picked up a little but, overall, consumer-facing services industries remain well below pre-pandemic (February 2020) levels. Services in total were still 8.8% lower YOY.

·       Production grew by 1.0% (MOM), whilst the manufacturing rose 1.3%. The higher production data mainly reflected manufacturing output’s picking up for the first time since November 2020 as the manufacture of motor vehicles, trailers and semi-trailers grew following contraction in the previous two months. The production sector was still 3.5% lower YOY and manufacturing was 4.2% down YOY.

·       Output in construction rose 1.6% (MOM), driven by growth in both new work and repair and maintenance. It was still 4.3% lower YOY.   

Sources: (i) ONS, “GDP monthly estimate: February 2021”, 13 April 2021; (ii) ONS, “Index of Production, UK: February 2021”, 13 April 2021; (iii) ONS, “Index of Services, UK: February 2021”, 13 April 2021; (iv) ONS, “Construction output in GB: February 2021”, 13 April 2021.

 

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Markit surveys for March suggest strong return to growth
8 April 2021

Markit surveys all firmed significantly in March, suggesting a strong return to growth in the month for all three sectors.  

·       The Manufacturing PMI improved further to 58.9 in March, after February’s 55.1, its best outcome since February 2011. The PMI level was supported by improved growth of output, new orders and employment along with increased supplier lead times. A slower decrease in stocks of purchases also had a positive impact on the latest reading compared to one month ago. (The manufacturing PMI is a weighted average of new orders, output, employment, suppliers’ delivery times, and stocks of purchases.)
·       The Services PMI Business Activity Index improved to 56.3 in March, up sharply from 49.5 in February, with the Index was above the 50.0 no-change level for the first time since October 2020. Moreover, the latest reading signalled the fastest rate of output expansion for seven months. Rising levels of activity were linked to a recovery in business and consumer spending, while some parts of the service economy commented on a boost from higher residential property transactions during March. Survey respondents often commented on pent up demand and work on projects that had been delayed at an earlier stage of the pandemic. Stronger client demand and forward bookings ahead of easing lockdown measures contributed to an increase in total new work for the first time in six months.
·       The seasonally adjusted UK Composite Output Index registered 56.4, up from 49.6 in February and above the neutral 50.0 threshold for the first time in 2021 to date. Moreover, the latest reading signalled the strongest rate of output growth for six months. (The Composite Output Index is a weighted average of the UK Manufacturing Output Index (not the PMI) and the UK Services Business Activity Index (PMI).)
·       The Construction Total Activity Index picked up to 61.7 in March, up sharply from 53.3 in February. The latest reading signalled the strongest rate of construction output growth since September 2014. Housebuilding (index at 64.0) was the best-performing category, with growth the fastest since July 2020. Strong increases in activity were also seen in commercial construction (62.7) and civil engineering (58.0) in March, with the index readings for both segments the highest since the second half of 2014. Survey respondents often commented on the mobilisation of delayed projects, especially in areas such as hospitality, leisure, and office development.

Sources: (i) Markit/CIPS manufacturing PMI, “UK Manufacturing PMI at decade high as growth of output, new orders and employment gather pace”, 1 April 2021; (ii) Markit/CIPS services PMI, “Service economy returns to growth in March, spurred by sharp rise in new orders ahead of lockdown easing”, 7 April 2021; (iii) Markit/CIPS Construction PMI, “Construction output expands at sharpest pace since September 2014”, 8 April 2021.

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The current account deficit of the balance of payments widened in 2020
31 March 2021

The current account of the balance of payments deficit widened modestly to £73.9bn in 2020, compared with £68.6bn in 2019, a deterioration of £5.3bn (table A). The components changed as follows:
·       The goods (including precious metals) deficit narrowed to £115.0bn (from £130.8bn in 2019), as imports fell more than exports.
·       The services surplus rose a tad to £107.4bn (from £103.3bn in 2019). Taking goods and services together, there was a total trade deficit of £7.6bn in 2020, down from £27.5bn in 2019. 
·       The primary income (mainly investment income) deficit widened to £38.2bn in 2020 (from £14.7bn in 2019). The ONS commented that “…credits fell more sharply than debits as earnings on investments abroad were more impacted by economic uncertainty because of the coronavirus pandemic”.
·       The secondary account (current transfers) deficit widened to £28.2bn (£26.4bn in 2019). The ONS commented “…payments to EU institutions increased as the UK reached the final year of the Multiannual Financial Framework (MFF) and to support the EU’s coronavirus response.”

The current account deficit with the EU narrowed to £72.2bn (£113.1bn in 2019), whilst the balance with non-EU countries swung to a small deficit of £1.7bn in 2020 (from a surplus of £44.5bn in 2019) (table C).

 

Turning to the quarterly data, the current account deficit widened in 2020Q4 to £26.3bn (from £14.3bn in 2020Q3) (table A):
·       The goods deficit widened to £41.7bn (£30.8bn in 2020Q3). Specifically, imports reflected the continuing evidence of stockpiling in preparation for EU exit after the end of the transition period on 31 December 2020. 
·       The services surplus increased a tad to £28.4bn (£26.8bn in 2020Q3). Trade in services exports and imports continued to be impacted by the pandemic, specifically in transport and travel services.
·       The primary income (mainly investment income) deficit narrowed a tad £5.0bn in 2020 (from £5.3bn in 2020Q3). This reflected the slightly larger recovery in UK earnings on foreign investments than the recovery in payments to foreign investors on their UK investments.
·       The secondary income deficit widened to £8.1bn (£5.0bn in 2020Q3).

The current account deficit with the EU widened to £22.5bn (£15.1bn in 2020Q3), whilst the balance with non-EU countries swung to a small deficit of £3.8bn in 2020Q4 (from a surplus of £0.8bn in 2020Q3) (table C).

 

Source: ONS, “Balance of payments: 2020Q4”, 31 March 2021.

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The current account deficit of the balance of payments widened in 2020
31 March 2021

The current account of the balance of payments deficit widened modestly to £73.9bn in 2020, compared with £68.6bn in 2019, a deterioration of £5.3bn (table A). The components changed as follows:
·       The goods (including precious metals) deficit narrowed to £115.0bn (from £130.8bn in 2019), as imports fell more than exports.
·       The services surplus rose a tad to £107.4bn (from £103.3bn in 2019). Taking goods and services together, there was a total trade deficit of £7.6bn in 2020, down from £27.5bn in 2019. 
·       The primary income (mainly investment income) deficit widened to £38.2bn in 2020 (from £14.7bn in 2019). The ONS commented that “…credits fell more sharply than debits as earnings on investments abroad were more impacted by economic uncertainty because of the coronavirus pandemic”.
·       The secondary account (current transfers) deficit widened to £28.2bn (£26.4bn in 2019). The ONS commented “…payments to EU institutions increased as the UK reached the final year of the Multiannual Financial Framework (MFF) and to support the EU’s coronavirus response.”

The current account deficit with the EU narrowed to £72.2bn (£113.1bn in 2019), whilst the balance with non-EU countries swung to a small deficit of £1.7bn in 2020 (from a surplus of £44.5bn in 2019) (table C).

 

Turning to the quarterly data, the current account deficit widened in 2020Q4 to £26.3bn (from £14.3bn in 2020Q3) (table A):
·       The goods deficit widened to £41.7bn (£30.8bn in 2020Q3). Specifically, imports reflected the continuing evidence of stockpiling in preparation for EU exit after the end of the transition period on 31 December 2020. 
·       The services surplus increased a tad to £28.4bn (£26.8bn in 2020Q3). Trade in services exports and imports continued to be impacted by the pandemic, specifically in transport and travel services.
·       The primary income (mainly investment income) deficit narrowed a tad £5.0bn in 2020 (from £5.3bn in 2020Q3). This reflected the slightly larger recovery in UK earnings on foreign investments than the recovery in payments to foreign investors on their UK investments.
·       The secondary income deficit widened to £8.1bn (£5.0bn in 2020Q3).

The current account deficit with the EU widened to £22.5bn (£15.1bn in 2020Q3), whilst the balance with non-EU countries swung to a small deficit of £3.8bn in 2020Q4 (from a surplus of £0.8bn in 2020Q3) (table C).

 

Source: ONS, “Balance of payments: 2020Q4”, 31 March 2021.

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GDP fall in 2020 little changed at 9.8%
31 March 2021

The ONS has revised the fall in GDP to 9.8% (YOY), slightly less than the initial estimate of 9.9%, but still the largest fall on record. There are, however, revisions to the quarterly data, which now read -2.8% (QOQ) for 2020Q1, -19.5% for 2020Q2, +16.9% for 2020Q3 and +1.3% for 2020Q4. The data released in February read -2.9% for 2020Q1, -19.0% for 2020Q2, +16.1% for 2020Q3 and +1.0% for 2020Q4.  

Within the total, the three major sectors all provided strongly negative contributions to GDP growth for 2020 (tables B1 and B2):
·       Services output fell by 9.0% (YOY), within which accommodation & food services fell 42.5% (YOY), education fell 16.4%, health fell 8.2% and “other services” (including arts) fell 25.8%.
·       Total production output decreased by 8.0%, within which manufacturing output fell by 9.5%.
·       Construction output decreased by 14.0%.

Turning to the expenditure components, all components were strongly negative, except the trade balance (table C2):
·       Household consumption contracted by 10.6% (YOY).
·       Government consumption fell by 6.5% (YOY).
·       Gross fixed capital formation (GFCF) fell by 8.8% (YOY), within which business investment fell by 10.2% (YOY). 
·       There was major destocking in 2020, after modest stock-building in 2019, dragging down GDP.
·       The trade deficit narrowed, as exports (volume terms) fell by 15.8% whilst imports fell by 17.8%. 

The households’ saving ratio rose sharply, reaching a record high of 16.3%, compared with 6.8% in 2019.

Source: ONS, “GDP quarterly national accounts, UK: 2020Q4”, 31 March 2021.

 

 

 

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Continued consumer credit repayments in February, but mortgage market still strong
29 March 2021

Concerning lending to individuals/households the Bank of England announced: 
·       Concerning net consumer credit, households continued to making net repayments of consumer credit in February (£1.2bn). This is a slightly smaller net repayment than the average of £1.8bn since March 2020 (Money and Credit statistical release, table B). As a result of the further repayment, the annual growth rate fell to -9.9%, a new series low since it began in 1994. Within consumer credit, the weakness on the month reflected net repayments on credit cards (£0.9bn) with some repayments of other forms of consumer credit (£0.3bn). The annual growth rates of both components fell further, to -21.0% and -4.8%, respectively. Both represent new series lows.
·       The mortgage market remained strong in February.
·       Net mortgage borrowing was £6.2bn in February, the strongest since March 2016 (table D). The annual growth rate for mortgage borrowing was 3.2% (3.1% in January). This was supported by the expected ending of the temporary stamp duty tax relief at the end of March, which was extended to end of June in the March 2021 Budget. The pick-up in borrowing has followed high levels of mortgage approvals for house purchase seen in recent months. Mortgage borrowing lags approvals.
·       Mortgage approvals for house purchase were 87,700 in February, compared with January’s 97,350 and the recent peak of 103,700 in November 2020 (table E). By comparison, the monthly average in the six months to February 2020 was 67,900. Approvals for re-mortgage (which only capture re-mortgaging with a different lender) rose slightly to 34,300 in February.

Concerning bank lending to non-financial businesses, which includes lending to businesses in the public sector (table G):
·       Net loans to SMEs were £0.4bn in February, after January’s £0.5bn, whilst the growth rate remained very high at 25.7% (YOY), compared with January’s 25.8%, following record net borrowing in 2020.  
·       In contrast, large businesses continued making net repayments in February, albeit only £0.3bn. The growth rate of borrowing by all large businesses was -1.2% (YOY) in February.

Businesses can also raise funds from financial markets via instruments such as equity, bonds and commercial paper (table F). Private non-financial companies (PNFCs) raised £0.7bn from financial markets in February, compared with the monthly average of £4.5bn since March 2020. The lower net issuance in February reflected higher gross repayments than in January. Net issues of equities and bonds were £1.1bn and £0.2bn, respectively, whilst there was a net redemption of commercial paper of £0.5bn, following net issuance of £1.1bn in January.

Sterling money (known as M4ex, excluding Intermediate Other Financial Corporations (IOFCs)) increased by £15.8bn in February, after January’s £31.1bn (table J). Households continued depositing significant amounts, with an additional £17.1bn placed in February. Private non-financial companies (PNFCs) placed £1.2bn, whilst Non-Intermediate OFCs decreased their holdings by £2.5bn. The M4 growth rate was 15.2% (YOY) in February, after January’s 15.0%.

Source: Bank of England, “Money and Credit: February 2021”, 29 March 2021.

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Retail sales only partly recovered in February
26 March 2021

Retail sales volumes only partly recovered in February 2021 with an increase of 2.1% (MOM) when compared with the 8.2% (MOM) fall seen in January, and sales were still down by 3.7% on a year earlier before the impact of the coronavirus pandemic. Non-food stores provided the largest positive contribution to the monthly growth in February 2021 sales volumes, aided by strong increases in department stores and household goods stores. Clothing retailers reported the largest YOY fall (50.4%), whilst automotive fuel stores reported a large YOY decline (26.5%) as travel restrictions continued to hit sales in that sector.

The proportion spent online increased to 36.1% in February 2021, the highest on record; this compares with 35.2% in January 2021 and 20.0% reported in February 2020.

In the three months to February 2021, retail sales volume fell by 6.3% (QOQ), with strong declines in both clothing stores and other non-food stores.

Source: ONS, “Retail sales, February 2021”, 26 March 2021.  

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Markit/CIPS flash composite output index suggests growth picked up in March
24 March 2021
The Markit/CIPS flash UK Composite Output Index picked up to 56.6 in February, compared with February’s 49.6 (final), comfortably above the neutral 50.0 threshold, led by recovery in services sector.

Concerning the component indices:
·       The Markit/CIPS flash UK Services Business Activity Index increased to 56.8 in March, compared with February’s 49.5. March data signalled a return to growth for new orders and employment across the service economy, whilst service providers widely commented on improving consumer confidence and signs of pent-up demand. Expectations of rising sales after the national lockdown, and a boost to sentiment from the successful UK vaccine rollout, contributed to an increase in business optimism.
·       The Manufacturing Output Index increased to 55.6 in March, from February’s 50.5, with some manufacturers citing advanced orders from hospitality businesses and high-street retailers. Export sales remained relatively subdued, however, with total new orders from abroad falling for the third month running.
·       Note the wider manufacturing PMI firmed to 57.9 compared with February’s 55.1. (The manufacturing PMI is a weighted average of new orders, output, employment, suppliers’ delivery times, and stocks of purchases.)

Chris Williamson, Markit’s Chief Busines Economist, noted “…the UK economy rebounded from two months of decline in March, with business activity growing at its fastest rate since last August as children returned to schools, businesses prepared for the reopening of the economy and the vaccine roll-out boosted confidence. The surge in business activity is far stronger than any economists expected, according to Reuters polls, and hints at only a modest contraction of GDP during 2021Q1, adding to evidence that the economy has shown far greater resilience in the third lockdown compared to the first. The encouraging readings on future expectations, job creation and new order inflows meanwhile all point to robust economic growth in 2021Q2, especially if virus restrictions are lifted further. Worries persist though, especially in relation to near-record supply chain delays, a continued fall in exports and sharply rising prices, all of which are making life difficult for many companies. Many consumer-facing companies meanwhile remain constrained by COVID-19 restrictions, which are likely to curb the overall pace of economic growth for some time to come, especially if we see a third wave of infections.”

Source: Markit/CIPS flash UK composite PMI, “UK private sector returns to growth in March, led by fastest increase in service activity since August 2020”, 24 March 2021. The Composite Output Index is a weighted average of the UK Manufacturing Output Index and the UK Services Business Activity Index, which are comparable indices.

 

 

 

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