UK economy rebounds as end of lockdown nears

Bloomberg

The UK economy rebounded in February as a mass vaccination program and the prospect of a loosening of coronavirus
restrictions lifted consumer confidence.
Gross domestic product rises 0.4% following a revised 2.2% decline in January, the Office for National Statistics said. All the main sectors of the economy saw output rise. The economy remains 7.8% smaller than it was before the pandemic hit Britain in February 2020.
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. The outlook depends on the willingness of households to spend an estimated 150 billion pounds ($206 billion) of savings accumulated when swathes of the economy were closed.
A separate government report showed post-Brexit damage to UK merchandise trade with the European Union partially recovered in February on improved exports of cars and pharmaceuticals.
UK goods exports to the EU rebounded almost 47% in February from a month earlier, while imports from the bloc
increased 7.3%. The figures
contrast with January’s performance, when trade in both directions with the EU recorded hefty drops.
Service industries grew 0.2% in the month, a third of the pace economists had expected, with gains driven by retail, accommodation and food services, all of which remained in lockdown during the month. Health output fell 2.7% in the month after a string of increases linked to spending on the pandemic.
Construction expanded 1.6%, triple what had been forecast. Industrial production rises
a stronger-than-forecast 1%, driven by a 1.3% increase in manufacturing output.
Early signs of pent-up demand came, when consumers flocked to stores that were allowed to open for the first time in almost 100 days along with pubs and restaurants that have space to serve outside.
The return of non-essential stores is the latest stage in a roadmap that Prime Minister Boris Johnson hopes will see all remaining curbs removed by June 21. The first step was the reopening of schools on March 8, and signs are that economic activity picked up in March.
A key purchasing-manager index rose well above the 50 level that divides contraction from expansion. Meanwhile, the British Retail Consortium said Tuesday that high street sales were higher last month than in both March 2020, when the first lockdown was imposed, and March 2019.
Economists say Britain could experience a consumer boom if only a fraction of the excess savings is unleashed, and the Bank of England’s chief economist sees a risk of unwanted inflation.
Falling infection rates and a rapid immunization program has boosted confidence the UK can avoid another lockdown. More than 60% of the adult population has now received a first dose of a vaccine.
“While the UK is still on course for a modest contraction in GDP in the first quarter, investors are increasingly looking towards the forthcoming rebound in economic growth rather than dwelling on the negative quarterly figure,” said Dean Turner, economist at UBS Global Wealth Management. “Attention will soon turn to the Bank of England May monetary policy meeting. We expect a confirmation of their recently hawkish stance, more so in light of the fiscal easing announced in the March budget.”
The better-than-expected performance in recent months suggests consumers and companies have adapted better to restrictions than they did during the first wave of the virus. GDP plunged by more than 19% in the second quarter of last year.
Bloomberg Economics said the economy may shrink just 1.6% in the first quarter, less than half the contraction predicted by the BOE, after January was revised to show a smaller fall in GDP.