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Construction output hit record fall in 2020 but rebound drives GDP growth

  • 13/04/2021
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Construction output hit record fall in 2020 but rebound drives GDP growth
Construction output suffered its largest annual fall since records began after the Office for National Statistics (ONS) revised its figures for 2020.


The latest ONS data revealed construction output for last year was revised down 1.5 percentage points from an annual fall of 12.5 per cent in 2020 to an annual fall of 14 per cent.

“This is now a record annual fall in construction output growth since annual records began in 1997. The previous record decline was 13.2 per cent in 2009,” the ONS said.

However, there was more encouraging news as the jump of 1.6 per cent seen in the construction sector in February was the biggest success behind a return to UK economic growth in the month.

The construction increase was driven by growth in both new work projects and repair and maintenance.

Overall the UK economy grew by 0.4 per cent in February, with the notable return to growth following a sharp drop of 2.2 per cent in January.

But the economy remained 7.8 per cent smaller compared to February 2020 before the pandemic hit.

Output in the production sector increased by one per cent, manufacturing grew by 1.3 per cent but the service sector grew by only 0.2 per cent, pointing to a “little” pick up in wholesale and retail trade sales.


Learning lessons

Howard Archer, chief economic advisor to the EY Item Club, argued that the figures show the economy is being affected less by lockdown measures than was originally the case, which suggested lessons had been learned and experience gained in how to keep activity going. 

He added: “Companies and employees have got used to home working and, significantly, many workplaces, offices, sites and plants have been adjusted to meet Covid-19 social distancing requirements so that employees can continue to work on site.”

Archer said that with confidence on the rise, EY Item Club was revising its GDP forecast for 2021 to a much higher five per cent, continuing: “The economy is expected to benefit progressively from the second quarter as restrictions on activity are eased, supported by the rapid roll-out of Covid-19 vaccines.”


Time for a spending spree

Danni Hewson, financial analyst at AJ Bell, said while there was still lots of ground to make up, the images of packed pub gardens and lengthy queues on the nation’s highstreets suggested many people were set to put restrictions behind them and embark on a spending spree.

She added: “There is also small comfort to be had in February’s trade figures. Exports to the EU which dropped so dramatically off a cliff in January have bungeed back up, though they are still £2bn down on pre-Brexit levels.

“Notably imports from the EU were less resilient and remain more than £5bn down. It’s clear there are still issues but many of those will have been exacerbated by lockdown restrictions, something which will undoubtedly continue further into the spring.”

Robert Alster, CIO at Close Brothers Asset Management, agreed that growth will be driven by spending and corporate investment, but argued the true state of the jobs market remains a big unknown.

He continued: “The furlough scheme will phase out from July to September, and it’s unclear whether businesses will re-hire all their workers. In a worst case scenario, a sustained rise in unemployment could undermine a strong UK recovery.”


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