Investment in United Kingdom
United Kingdom - Investment
Economy ekes out mild growth in Q4 notwithstanding restrictions
GDP growth moderated to 1.0% on a seasonally-adjusted quarter-on-quarter basis in the fourth quarter, from 16.1% in the third quarter. Despite the slowdown, the economy still performed better than many analysts predicted, as both firms and consumers were more able to adapt to lockdown restrictions compared to the spring.
Private consumption fell 0.2% in the fourth quarter, which contrasted the third quarter's 18.9% expansion, driven by the closure of the hospitality sector and non-essential shops in November. Government consumption growth moderated to 6.4% in Q4 (Q3: +12.9% s.a. qoq). Meanwhile, fixed investment growth waned to 2.1% in Q4 from 20.3% in the previous quarter, with Brexit uncertainty likely causing firms to delay investment decisions.
Exports of goods and services bounced back, growing 0.1% in seasonally-adjusted quarter-on-quarter terms in the fourth quarter (Q3: -1.1% s.a. qoq). Conversely, growth in imports of goods and services moderated to 8.9% in Q4 (Q3: +13.3% s.a. qoq).
On an annual basis, economic activity dropped 7.8% in Q4, down from the previous quarter's 8.7% fall. As a result, the economy contracted 9.9% over 2020 as a whole—the sharpest fall on record.
Prospects for Q1 2021 are dim, as a third, tougher, nationwide lockdown was enforced in early January. The closure of shops and restaurants will weigh on private spending, while the closure of schools will hit government consumption. Moreover, disruption as firms adapt to new trading relations with the EU could further hold back momentum. However, the economy should gain substantial steam from Q2 onwards, as a rapid vaccination campaign will allow restrictions to be rolled back, unleashing some pent-up demand as households reduce their savings and sentiment improves.
On Q4’s reading and prospects for Q1, analysts at Goldman Sachs commented:
“Economic activity has become less sensitive to renewed restrictions, reflecting better adapted authorities, consumers and firms, and continued policy support. Although the UK averted another contraction in the last quarter of 2020, we expect the renewed lockdowns that have been in place since early January—involving somewhat lighter restrictions than during last year's March-April lockdown (as construction and manufacturing activities remain open) but tighter than in November (with schools closed)—to lead to a further contraction in GDP in Q1.”
Regarding the medium-term outlook, Kallum Pickering, senior economist at Berenberg, stated:
“Vaccine progress, aggressive policy support, Brexit clarity, and a strong tailwind from the recovering global economy set the stage for rapid catch-up growth in the UK from spring onwards. The dual effects of virus restrictions which act like a dam for spending combined with aggressive policies to maintain household incomes—i.e. furlough scheme—have created a huge reservoir of excess demand. Removing virus restrictions will be the equivalent of suddenly removing the barrier, unleashing a wave of consumer spending.”
FocusEconomics panelists expect the economy to expand 4.5% in 2021, which is down 0.8 percentage points from last month’s forecast, and 5.5% in 2022.
United Kingdom - Investment Data
|Investment (annual variation in %)||3.7||3.6||1.6||-0.2||0.6|
5 years of economic forecasts for more than 30 economic indicators.
United Kingdom Facts
|Bond Yield||0.83||-3.04 %||Jan 01|
|Exchange Rate||1.33||-0.35 %||Jan 01|
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United Kingdom: Furlough scheme continues to buttress the labor market, notwithstanding fresh lockdown
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