UK GDP falls less-than-expected 2.9% in Jan; Exports to EU plunge

Britain’s economy contracted by a less-than-expected 2.9% in January as the third national lockdown came into force, official data revealed on Friday, while exports to the EU plunged 40.7% in the first month after the Brexit deal was signed.

Economists had forecast a month-on-month decline of 4.9%. The figure comes after a 1.2% expansion of gross domestic product (GDP) in December. Britain was forced back into lockdown at the start of January to counter a rising number of Covid-19 cases, with schools and non-essential businesses shut.

GDP remained 9% below pre-pandemic levels in January, the Office for National Statistics said.

Exports of goods to the EU plunged by 40.7%, or £5.6bn, the biggest monthly fall in UK imports and exports to the bloc in more than 20 years, the data showed for the first month since Britain left the 27-nation bloc under the deal signed off by the UK government.

Data also showed that goods exports to the European Union fell by £5.6bn, as imports fell by 28.8%, or £6.6bn.

AJ Bell analyst Danni Hewson, said some of the decline could be attributed to lockdown, stockpiling and "teething troubles".

"But it’s clear that the Brexit transition has been far from smooth and markets will be paying close attention to whether current frictions mean long-term changes,” Hewson said.

The ONS said the services sector acted as the main drag on growth in January, falling 3.5% as restrictions on activity were reintroduced in response to the coronavirus pandemic, hitting hospitality and leisure firms. The services sector was 10.2% below February 2020 compared with 4.9% below the level seen in October 2020.

Construction grew by 0.9% during the month as its recovery continued and new work came in.

However, the production sector fell by 1.5% in January 2021, after manufacturing contracted for the first time since last April – down 2.3% – according to the figures.

Deputy national statistician for economic statistics Jonathan Athow said increases in health services from both vaccine rollout and increased testing partially offset the declines in other industries.

Samuel Tombs, chief UK economist at Pantheon Economics said: "Brexit made a bad situation worse in January, though it is impossible to determine the extent to which the hefty 2.3% month-to-month drop in manufacturing output, and the 40% decline in the value of exports to the E.U., was due to overseas customers bringing forward their orders to Q4 to mitigate the risk of no-deal, versus the damage emanating from new trade frictions."