Britain’s economy returns to growth as EU exports rebound

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The UK economy edged higher in February, helped by a partial rebound in trade with the EU as businesses learnt to deal with lockdown and new Brexit border restrictions.

Output grew 0.4 per cent in February compared with the previous month, data from the Office for National Statistics showed on Tuesday. Separate data from the ONS showed that in the second month of the imposition of Brexit border controls there was a £3.7bn rise in exports to the bloc following a £5.7bn monthly drop in January.

Imports from the EU showed a weaker increase, rising £1.2bn in February after a record drop of £6.7bn in January. Both the gross domestic product and the trade data were heavily affected by Covid-19 and associated restrictions on business and show the UK economy still has a long climb back to normality when restrictions are lifted.

The economic growth of 0.4 per cent in February was smaller than the 0.6 per cent forecast by economists polled by Reuters and it followed a fall of 2.2 per cent in January. The service sector grew 0.2 per cent in February, as wholesale and retail trade sales picked up a little.

Growth in services was dragged down by health output which saw a 2.7 per cent contraction as fewer Covid-19 tests were conducted in February than in the previous month.

Overall, consumer-facing businesses remain well below pre-pandemic levels.

Thomas Pugh, UK economist at Capital Economics, said: “Given there was no change in the lockdown restrictions in February, GDP was never going to shoot back up.”

Output was still 7.8 per cent below the level seen in February 2020, before the first lockdown. However, thanks to success in rolling out vaccines and with most client-facing services reopened on Monday, the economy is set for a rapid rebound in the spring.

“We’re looking for a 4-5 per cent bounce in GDP in the second quarter,” said James Smith, economist at ING.

February’s economic growth when many businesses were shut supports the view that the economy suffered a much milder hit in the latest lockdown than in spring 2020 as consumers adapted to Covid-19 restrictions. The construction sector grew 1.6 per cent supported by a strong housing market and manufacturing rebounded 1.3 per cent from January’s contraction as car producers experienced a partial recovery from the previous month.

The UK’s trade position was also affected by Covid-19 and the border controls imposed after the UK left the EU.

Britain’s trade levels with the EU have been volatile and partially recovered in February from sharp falls in January when Brexit border controls were introduced and the most recent coronavirus wave was at its peak, but still remained below pre-Brexit levels.

The rise still left UK exports to the EU 15 per cent down on December’s level, similar to the level of the Brexit-related drop in trade between the UK and the EU expected in the longer term by the Office for Budget Responsibility.

Exports to the EU were 22 per cent lower than February 2019 levels and imports 26 per cent lower than in the same month two years ago well before the impact of both Brexit and Covid-19 on the figures.

The movements in British trade with the EU were far greater than those for non-EU countries, indicating that Brexit is the most likely cause of the movements. It is likely to take some months before trading patterns settle down after initial border controls created deep problems for some industries.

The UK is one of the few countries that produce monthly GDP data and has still not implemented full border controls on imports.

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