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12 March 2021

UK GDP Falls but Rebound is in Sight

UK GDP figures showed a 2.9% fall in output during January 2021 compared to December 2020 as the national lockdown stunted the COVID-19-affected economic rebound. While the figure was better than the 4.9% expected by many economists, it marks the largest contraction since April 2020. Additional data also highlighted the impact that Brexit red tape is having on trade with the European Union (EU), as Britain’s exports to the bloc fell more than 40%, a shockingly large fall with the UK’s biggest trading partner.

Despite the fall, many had expected a significant reduction in trade with the EU as businesses rushed to stockpile inventory and raw materials before the Brexit deadline, leaving a large number of EU businesses, which would usually be dependent imports from the UK, with plenty of product, thus reducing the need for additional imports. The reduction was also likely due to the teething problems many businesses and logistics companies faced at the border, leaving trucks stranded at Dover as drivers attempted to sort out paperwork with the French authorities. While the amount of red tape is unlikely to fall, we would hope to see businesses, freight drivers and customs agents all start to become familiar with the new rules and expectations, especially given as though this new understanding is in everyone’s best interest.

While the figures may paint a gloomy picture, we would expect trade to return to somewhat normal levels, with economic activity also returning to growth as the UK’s impressive vaccination programme continues to inoculate large numbers of the population each day. Given the roadmap out of lockdown that the Prime Minister has initiated the gradual easing restrictions, we would also expect businesses in the leisure and hospitality sector to start trading again, helping to heal the damage done during the COVID-19 outbreak and helping the population return back to normal life.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
UK GDP Falls but Rebound is in Sight
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