What’s Happening with the British Economy?
The British economy is a complicated beast. It is tied to the larger global economy and to politics, as well as being driven by domestic and international investors. In order to understand the latest developments and insights into the British economy, it is important to look at the data from the Office for National Statistics (ONS) and other reliable sources to get the most up-to-date picture.
Gross Domestic Product: A High Level Overview
The UK Gross Domestic Product (GDP) is an important measure of economic activity and is the total output of goods and services produced by the UK during a given period of time (usually one year). According to the ONS, the UK’s real GDP growth rate for 2020 has been slow and lower than in previous years, ranging from 1.8% in the first quarter (Q1) to 1.3% in Q3. This can be largely attributed to the Covid-19 pandemic and the subsequent downturn it triggered.
Employment: A Stabilizing Labor Market
The employment rate has steadily declined since the onset of the pandemic due to a combination of job losses and people leaving the workforce. However, it has recently been stabilizing at just under 75% according to the ONS. The UK’s employment rate in December 2020 was 14.2 million, a slight decrease from the previous month’s 14.3 million. Despite this, there were still 1.58 million unemployed people during this time period.
Wages: Real Wage Growth Despite Lower Salary Growth
The ONS reported that in the three months to November 2020, wage growth slowed down as the pandemic continued to affect job security and hours. Since April of 2020, the average wage growth was 2.6%, down from 3.2% in August. Despite this, the pandemic has brought about notable real wage growth since April due to the reduction in inflation. The inflation rate in November 2020 was 0.3%, down from 1.5% in October.
Sterling and the Exchange Rate: Influenced by Political Protests
The pound sterling has been on the decline since the beginning of June 2020 due to Brexit-related uncertainty. It further weakened in early August 2020 following the revelation of an internal rift between Boris Johnson and Dominic Cummings, notably in response to a set of leaked documents on post-Brexit trade. This decline was also affected by protests in the UK as well as on the global stage with protests in Belarus, Iraq, and the US.
UK Debts: COVID-19 Resulted in a Surge
As the pandemic worsened and the UK had to move into several lockdowns, the national debt was hugely impacted. In April of 2020, the Office for Budget Responsibility’s (OBR) report showed total public sector net debt stand at £2 trillion (106.1% of GDP). This figure is around 18% higher than the debt levels reported at the start of the coronavirus crisis.
Consumer Spending: E-commerce on the Rise
Consumers have been cutting back on discretionary spending due to the risk posed by the virus. This led to some retail businesses across the UK suffering closures and declining sales. However, the rise of e-commerce has been an unexpected boon for some businesses that have been able to adapt to the changing landscape.
International Trade: Perspectives from India and Hong Kong
British exports to India have seen a downturn in 2020 due to the impact of the pandemic. UK exports to India were down 11.9% to £1.44 billion in the third quarter of 2020. These exports are expected to remain at low levels in 2021, as the pandemic continues to have an effect on trade between the two countries.
A different story can be found in British exports to Hong Kong. The latest available data (Q3 of 2020) reported that British exports had risen to £3 billion, a 6% increase from the previous quarter. This shows that despite the lower international trade caused by the pandemic, there are still markets that are relatively resilient to the shock.
Investments: Private Equity and Venture Capital Growing
The private equity (PE) and venture capital (VC) industries have grown significantly in the UK over the past few years. Fund managers in these industries have been adapting successfully to the high regulatory standards, as well as looking to invest in innovative and growing businesses.
According to 2019 data from PitchBook and the British Private Equity & Venture Capital Association, there was a 24.6% year-on-year increase in PE-backed buyouts, whilst VC deals increased by 27%. This provides strong evidence of how these industries have taken investments to the next level in 2020.
Inflation: Low Annual Inflation Figures
The annual inflation rate, as measured by the Consumer Prices Index (CPI), is a widely used economic indicator. It measures the average price changes in goods and services, and also serves as a measure of purchasing power within an economy.
The latest ONS figures show that the UK’s annual inflation rate was 0.3% in November 2020, which is down from the 0.7% rate seen in October. This was largely a result of the drop in items such as petrol prices and clothing costs.
Interest Rates: Stable at 0.1%
Interest rates, voted on by the nine-member Monetary Policy Committee of the Bank of England, have been held at a stable 0.1% since March 2020. This was done in order to help encourage economic activity, while preventing too much money from flooding the markets and causing inflation to accelerate too quickly.
An Uncertain Economic Landscape
The British economy is going through a period of intense volatility and uncertainty. The impact of the pandemic has been significant, but other issues such as Brexit and riots in the UK have also contributed to the turbulence.
The data from ONS and other reliable sources highlight the challenges faced by the British economy in 2020 and offer some insights into the possible direction it may take in the near future. Though the outlook may appear uncertain in the short-term, the growth of certain industries such as private equity and venture capital shows that the UK is still capable of adapting to a changing landscape.
Ultimately, only time will tell how the UK economy will shape up. Investors both domestic and international will be paying close attention, as any new developments can have an impact on the markets.
