UK Economic Performance
UK economy avoids double dip in 2020 despite worst year-on-year performance on record.
The UK economy grew by 1.0% in the fourth quarter of 2020. This performance marked a substantial slowdown from the 16.1% growth rate witnessed in Q3. But it meant that the UK economy avoided a double dip in the final months of the year.
This takes GDP for the whole of 2020 to a level 9.9% lower than in 2019, marking the worst year-on-year performance since official records began.
It’s a testament to the UK economy that a further contraction was avoided in Q4, given the prevalence of restriction measures during the quarter, including the second nationwide lockdown. Though output suffered a lockdown-induced dip in November, higher levels of output in October and December were more than sufficient to offset this.
But there’s a large variation in the performance of the sectors. For example, while the services sector saw quarterly growth of 0.6% in Q4, subsectors within it witnessed large-scale contractions. This was most evident in the accommodation & food services sector, where a 32.8% quarterly contraction acted as a significant drag on total output growth.
Meanwhile, manufacturing saw strong performance, with 3.3% quarterly growth, and the construction sector, with 4.6% growth compared to Q3. The subsector of new-build private housing saw a particularly large uptick, of 6.7%, reflecting the continuing boom in the wider housing market.
In comparison with similar economies, these figures suggest the UK was a relatively strong performer at the end of 2020. For instance, the Eurozone saw a contraction of 0.7% in Q4, according to estimates from Eurostat.
The UK unemployment rate picked up further in the final quarter of 2020, reaching 5.1%. This represents an uptick of 0.3 percentage points compared to Q3 and the joint-highest unemployment rate since the three months to October 2015.
As of the end of the quarter, the unemployment rate had increased for six consecutive three-month periods, beginning in the three months to July. Meanwhile, a cumulative 1.1 percentage points were added to the unemployment rate between the beginning of the crisis and the end of 2020.
Sadly, the next couple of months could see thousands of redundancies across the UK. Any business looking to do this must plan this carefully, and consider whether they’re obliged to collectively consult. This is crucial, as a failure to do this correctly can be very costly.
As this report highlights, over a third of towns and cities will see an increase in job levels. Many of these will be part-time and casual in nature. It’s important that businesses recognise that even if they're taking on staff for a short-period of time, they now need to provide a statement of their employment terms from day one.
Joanne Moseley
Senior Associate and Employment expert
City Growth Tracker
The performance of 50 UK Powerhouse cities, based on GVA and employment growth.
The 2020 coronavirus crisis heavily impacted the UK economy and placed severe limitations on economic activity.
GDP for the whole of 2020 was 9.9% lower than in 2019, highlighting the loss of output, and all UK regions have been affected by the government’s restrictions.
But areas with particularly large hospitality, entertainment or tourism industries have been affected to a greater degree, as these parts of the economy have seen the tightest limitations.
This report provides a nowcast of the latest full quarter of data (Q4 2020) and a forecast for a year ahead (Q4 2021). Q4 2021 is particularly interesting, as the furlough scheme is set to be lifted by the start of the quarter. This could cause a rise in unemployment.
In Q4 2020, all cities saw a fall in economic output compared to a year earlier.
Sunderland is the city estimated to have seen the smallest decline.
The North East city saw a 5% year-on-year contraction in economic output. Its large manufacturing sector makes up 16% of the economy, and these businesses weren’t prevented from being open in Q4. This means that this sector didn’t see the limits on economic activity that many enterprises in the services sector did.
Nearly a third (29%) of jobs in Sunderland are in the public sector, which have largely been protected from the economic fallout of the crisis. Sunderland's therefore estimated to have seen 0.4% employment growth in Q4 2020, making it one of only three cities to have seen a rise in employment.
At 5.6%, Coventry saw the second smallest contraction in economic output in Q4 2020, compared to a year earlier.
Despite this, it saw a relatively greater annual drop in employment of 2.1%. A quarter of the population of the city is in the 18 to 29 age bracket, which has been hit hardest by the crisis in terms of job losses.
Certain industries with an economic presence in Coventry have been thriving amid the coronavirus crisis, though.
For instance, there’s been a rise in e-commerce, as people have been forced to shop online rather than in person. Coventry’s large Amazon distribution centre has also seen rising demand.
Oxford and Cambridge saw the fastest employment growth out of the UK Powerhouse cities in Q4 2020, with 3.0% and 2.9% growth respectively.
The dominant life sciences and research sectors in these cities have seen a rise in funding amid the coronavirus pandemic, as research into vaccinations and viruses became more important.
Both Oxford and Cambridge are expected to see fast economic growth heading out of the coronavirus crisis, both appearing in the top 10 cities for GVA growth in Q4 2021.
But Solihull’s forecast to see the fastest GVA growth in Q4 2021, with a 7.7% annual increase.
By October 2021, it’s hoped that all restrictions on economic activity will have lifted. Sectors which have been largely closed since March 2020, including hospitality and entertainment, will have reopened. This will allow cities such as Solihull to see a bounce back in GVA.
Solihull benefits from its proximity to Birmingham, but is expected to see faster growth than its neighbour. The pandemic has made living in a large city less attractive to many households.
Many have moved to smaller towns and cities, and suburban areas such as Solihull have benefitted. Instead of commuting into central Birmingham, many residents of Solihull will work from home and engage in activity in the local area, even once the pandemic is over.
This report's findings about the economic strength of large towns such as Solihull and Warrington are interesting. They point to a lifestyle change where people are less likely and willing to commute every day. I think it’s too early to call as to what businesses are going to do about their office space in the medium term.
Unless organisations have a lease event impending, they aren’t making big decisions. Even when they do have deadlines looming, they’re making decisions that don’t represent future intentions. Some businesses, for example, are taking new flexi leases because they don’t yet know what space they’ll want.
One trend that might become clearer sooner rather than later is the glut of evictions resulting in new space coming to the market. The moratorium on evictions is ongoing, but the requirement to pay rent isn’t. So it makes sense for landlords and tenants to be speaking now, rather than waiting until legal action is taken.
Roy Beckett
Partner and Real Estate Expert, Irwin Mitchell
Warrington’s expected to benefit similarly from the shift in lifestyles that many households have chosen amid the coronavirus pandemic. The city, which sits between Liverpool and Manchester, is expected to see 7.7% annual growth in economic output in Q4 2021.
The city’s also seen successful redevelopment of the Time Square area in 2020, including new retail outlets and council offices. This will stimulate economic activity once social distancing restrictions are eased.
Sheffield’s expected to see relatively weaker growth in Q4 2021, with a 6.1% annual growth forecast. Although this places the city in the bottom ten out of 50 for economic growth, it’s certainly an improvement on the 6.4% fall in output in Q4 2020.
Part of the reason for the relatively weak growth in Q4 2021 is the fact that the 6.4% fall in the final months of 2020 was smaller than in most other cities. This means there’ll be less ground to recover in 2021.
Cardiff and Swansea are expected to see the fastest employment growth rebound in Q4 2021, after Cambridge.
Over three in five cities are expected to see an annual fall in employment in Q4 2021, as furlough draws to a close at the end of September. At this point, businesses may make redundancies for workers they can’t afford.
Despite this, Cardiff and Swansea are expected to see growth of 2.5% and 2.2% respectively. Both of these cities have relatively large public sector employment. Essential services will need to continue, so these workers are less likely to lose their jobs amid a recession.
Expert view
“Businesses must plan for the end of furlough on Thursday 30 September 2021. From July, they must contribute 10% towards the grant, increasing to 20% in August and September. This may put a strain on finances.
“Businesses need to start to think about whether they’re likely to need fewer people. If so, they need to decide whether to start redundancy programmes before September. This time around, businesses can’t use the furlough grant to contribute towards an employee’s notice pay and will have to fund this themselves together with any statutory (or enhanced) redundancy pay.
“At the same time, HMRC are ramping up their checks on businesses claiming furlough. Even if you know your figures are correct, you may still have to demonstrate that you only claimed what you were entitled to. You’ll need to keep copies of all records relating to claims for up to six years, including the amount, the claim period for each employee, and your calculations.
“We’ve seen a number of businesses accused of unfair dismissal by employees who think they should have been furloughed instead of being made redundant. Many of these are misconceived and are likely to fail because there is no ‘right’ to be furloughed, and using the scheme remains at an employer’s discretion. Businesses don’t have to delay making difficult business decisions just because a temporary subsidy is available.”
Joanne Moseley
Senior Associate and Employment expert, Irwin Mitchell
London’s expected to see the largest decline in employment in Q4 2021, with Outer London areas forecast to see a 5.4% fall in employment.
The capital's big accommodation & food services sector has seen the largest usage of the furlough scheme. The latest data from HMRC shows that 56% of employees in this sector were using the furlough scheme at the end of February 2021.
London also has a big arts, entertainment & recreation industry. Across the UK, 55% of employees in this sector were being paid through the furlough scheme. When the job support scheme ends, it could threaten many jobs in the capital.
The support measures put in place by the government early on in the pandemic have provided a lifeline to many businesses during one of the most challenging economic periods in memory.
But it’s equally important to be aware of, and prepared for, the withdrawal of support, such as the Job Retention Scheme, and for the coming-due of loans provided under the CBILs and BBLs schemes.
A substantial number of businesses are likely to require advice as these are lifted. Where businesses recognise that difficulties may be on the horizon and take advice promptly, they’re far more likely to survive.
Andrew Walker
Partner and Restructuring & Insolvency Expert, Irwin Mitchell
Southampton’s also forecast to see a big drop of 1.7% (on an annual basis) in employment in Q4 2021, placing it in the bottom ten out of the 50 Powerhouse cities.
The city is similarly set to suffer from the end of the furlough scheme. But looking beyond 2021, the announcement of the Solent Freeport area will bring economic activity to the area.
Solent Local Enterprise Partnership (LEP) research suggests that more than £2bn could be invested in the region through lower taxes and less red tape for businesses in the designated area. This could create up to 52,000 jobs.
Expert view
“There’s a feeling that freeport status will be different in a post-Brexit world from what it could’ve been in the past, thinking back to the old but similar Enterprise Zones. The government now has more latitude on offering tax breaks and subsidies. But whatever is done, it’ll still need to comply with the EU-UK Trade and Cooperation Agreement and World Trade Organisation rules.
“The intention is clearly to increase employment prospects and boost investment in areas that traditionally struggle with both. In areas like Teesside, this is how the scheme will ultimately be judged.
“The enhanced capital allowances and 100% Stamp Duty Land Tax relief should provide a welcome boost for those region's commercial property markets, albeit they’re time limited until 2026. We may see tax planning around locking in those tax reliefs as we approach 2026.
“Freeports have the potential to open up investment, but the government will need to get the balance right to achieve the chancellor’s ambition to ‘change the economic geography' of the country. With an even geographical spread, it looks like the government recognises the need to support the northern powerhouse, while backing southern regions that’ve had it tough recently.
“Time will tell if the initiative and balancing act in terms of the freeports selected can deliver the anticipated benefits and make good on the government’s pledge to level up the wider economy for all.”
Sarah Cardew
Partner and Tax Specialist, Irwin Mitchell
| City tracker ranking: GVA, Q4 2020 |
| |
|
GVA Q4 2020, £mn
(annualised, CVM constant prices) |
Growth (YoY) |
| 1 |
Sunderland |
6,700 |
-5.00% |
| 2 |
Coventry |
8,500 |
-5.60% |
| 3 |
Exeter |
4,900 |
-5.60% |
| 4 |
Edinburgh |
22,200 |
-5.60% |
| 5 |
Bournemouth |
8,200 |
-5.60% |
| 6 |
Huddersfield |
6,800 |
-5.70% |
| 7 |
Derby |
6,400 |
-5.70% |
| 8 |
Rotherham |
4,400 |
-5.90% |
| 9 |
Cardiff |
12,700 |
-5.90% |
| 10 |
Bradford |
8,500 |
-5.90% |
| 11 |
Portsmouth |
5,100 |
-5.90% |
| 12 |
Oxford |
19,100 |
-5.90% |
| 13 |
Plymouth |
4,900 |
-5.90% |
| 14 |
Swindon |
8,600 |
-6.00% |
| 15 |
Chelmsford |
4,400 |
-6.00% |
| 16 |
Brighton |
7,500 |
-6.00% |
| 17 |
Birmingham |
26,100 |
-6.00% |
| 18 |
Hull |
5,500 |
-6.10% |
| 19 |
Peterborough |
5,900 |
-6.20% |
| 20 |
Wakefield |
6,600 |
-6.20% |
| 21 |
Sheffield |
11,300 |
-6.40% |
| 22 |
York |
5,700 |
-6.40% |
| 23 |
Wolverhampton |
4,200 |
-6.40% |
| 24 |
Glasgow |
18,300 |
-6.40% |
| 25 |
Milton Keynes |
12,900 |
-6.40% |
| 26 |
Bristol |
13,200 |
-6.50% |
| 27 |
Cambridge |
17,900 |
-6.50% |
| 28 |
Stockport |
6,000 |
-6.50% |
| 29 |
Winchester |
4,700 |
-6.50% |
| 30 |
Solihull |
8,800 |
-6.50% |
| 31 |
Swansea |
4,800 |
-6.50% |
| 32 |
Doncaster |
5,200 |
-6.50% |
| 33 |
Preston |
4,000 |
-6.60% |
| 34 |
Belfast |
12,000 |
-6.70% |
| 35 |
Leicester |
7,400 |
-6.70% |
| 36 |
Nottingham |
9,000 |
-6.80% |
| 37 |
Outer London |
126,500 |
-6.80% |
| 38 |
Greater Manchester |
63,000 |
-6.90% |
| 39 |
Liverpool |
11,900 |
-6.90% |
| 40 |
London |
400,400 |
-7.00% |
| 41 |
Newcastle |
17,400 |
-7.00% |
| 42 |
Northampton |
6,800 |
-7.00% |
| 43 |
Leeds |
23,200 |
-7.10% |
| 44 |
Inner London |
273,900 |
-7.10% |
| 45 |
Reading |
7,300 |
-7.10% |
| 46 |
Warrington |
6,700 |
-7.20% |
| 47 |
Southampton |
6,800 |
-7.30% |
| 48 |
Manchester |
20,000 |
-7.40% |
| 49 |
Stoke-on-Trent |
5,000 |
-7.70% |
| 50 |
Aberdeen |
16,000 |
-7.70% |
| City tracker ranking: Employment, Q4 2020 |
| |
|
Employment Level,
Q4 2020 |
Growth
(YoY) |
| 1 |
Oxford |
142,500 |
3.00% |
| 2 |
Cambridge |
148,800 |
2.90% |
| 3 |
Sunderland |
127,900 |
0.40% |
| 4 |
Newcastle |
203,800 |
-0.20% |
| 5 |
Warrington |
124,500 |
-0.30% |
| 6 |
Reading |
130,600 |
-0.50% |
| 7 |
Stockport |
112,800 |
-0.60% |
| 8 |
Swindon |
115,000 |
-0.80% |
| 9 |
Cardiff |
249,000 |
-0.90% |
| 10 |
Preston |
109,900 |
-1.00% |
| 11 |
Greater Manchester |
1,319,800 |
-1.00% |
| 12 |
Swansea |
113,800 |
-1.20% |
| 13 |
Liverpool |
315,900 |
-1.30% |
| 14 |
Nottingham |
228,900 |
-1.30% |
| 15 |
Northampton |
135,500 |
-1.40% |
| 16 |
Brighton |
147,000 |
-1.60% |
| 17 |
Portsmouth |
105,200 |
-1.70% |
| 18 |
Winchester |
54,200 |
-1.80% |
| 19 |
Huddersfield |
160,600 |
-1.80% |
| 20 |
Solihull |
100,900 |
-1.90% |
| 21 |
Stoke-on-Trent |
122,900 |
-2.00% |
| 22 |
York |
120,500 |
-2.00% |
| 23 |
Coventry |
|
