UK economy grew in February as trade with the EU rebounds

Exports rebound to the European Union, rising 47% but not enough to eclipse January collapse

The Chise Bulker Tanker at anchor in Weymouth bay in Portland, England. Trade between Britain and the EU recovered with exports in February rebounding 46.6% in February to £11.6bn. Getty Images

Britain’s economy grew 0.4 per cent in February as companies prepared for the easing of tighter coronavirus restrictions and trade rebounded with the European Union.

The slight growth in gross domestic product in February followed a 2.2 per cent decline in January when England was plunged into its third lockdown amid soaring Covid-19 cases, according to the Office for National Statistics.

There were also signs that trade between Britain and the EU recovered as February exports grew by 47 per cent to £11.6 billion ($15.94bn), while the import of goods recorded a weaker rebound of 7.3 per cent.

This comes after a 42 per cent, or £5.7bn, drop in exports to the EU in January – the first month of the new post-Brexit trade relationship – when businesses struggled to cope with the new rules.

“Exports to the EU recovered significantly from their January fall, although they still remain below 2020 levels. However, imports from the EU are yet to significantly rebound, with a number of issues hampering trade,” the ONS said.

Britain’s economy contracted by about 10 per cent last year, its biggest slump in more than 300 years, as the country was battered by the pandemic.

The fall was more severe than in most European economies. However, the UK’s speedy vaccination programme has raised the prospect of a bounce-back this year and in 2022.

While the economy showed some improvement in February after the large falls seen at the start of the year, it still remains about 8 per cent below its pre-pandemic level, the ONS said.

“Wholesalers and retailers both saw sales pick up a little, while manufacturing improved with car producers experiencing a partial recovery from a poor January, the ONS said.

Rory Macqueen, principal economist at the National Institute of Economic and Social Research, said despite little change in restrictions, a return to growth in February and upward revisions to January GDP from a decline of 2.9 per cent to 2.2 per cent mean that the contraction in the first quarter will be much smaller than anticipated.

“Clearly much of the economy has adapted to cope with Covid-19 restrictions: while hospitality was down by over 50 per cent in February on a year earlier, and the arts by over a third, both manufacturing and construction were only 4 per cent smaller, “ Mr Macqueen said.

“Output in public administration, health and energy sectors was higher than a year earlier. If the vaccine programme and lifting of restrictions continue on schedule this provides a firm basis for continuing growth in the second quarter and 2021 overall.”

Britain is emerging from its third national lockdown with consumers and businesses increasingly optimistic about a rapid recovery from the worst recession in three centuries.

On Monday, non-essential shops opened along with outdoor hospitality venues, gyms, hairdressers and beauty salons.

The outlook depends on the willingness of households to spend about £170bn of savings accumulated when large parts of the economy were closed.

Early signs of pent-up demand came on Monday, when consumers flocked to high street, queuing outside stores from the early hours.

Customers queue outside a Primark clothing store following its reopening on Oxford Street in central London on Monday. Bloomberg

Thomas Pugh at Capital Economics says the road to recovery looks clear from here with the rise in February’s GDP indicating that January’s contraction was probably the low point of the year.

"Vaccinations and the reopening of the economy will combine to trigger a rapid rebound in activity over the next few months," said Mr Pugh.
"With schools having opened in March and outdoor hospitality and non-essential retail stores opening yesterday, the rises in GDP should be much stronger in the coming months. By early next year, we think the economy will have returned to pre-pandemic levels."