Coronavirus and the impact on output in the UK economy: July 2021

• The easing of all coronavirus (COVID-19) restrictions in England on July 19 contributed to monthly gross domestic product (GDP) growing by 0.1% between June 2021 and July 2021; however, GDP remained 2.1% below its level in February 2020, which was the most recent month not significantly affected by the coronavirus pandemic.

• The July 2021 growth in GDP was led by a month-on-month rise of 1.2% in production, although this sector remained 2.1% below its February 2020 level; the rise was led by the mining and quarrying sector (contributing 0.16 percentage points of positive growth to GDP), with the extraction of crude petroleum and natural gas industry growing by 28.0%.

• Monthly services output remained broadly flat in July 2021 leaving it 2.1% below its February 2020 level; the sectors providing the strongest positive growth were information and communication (contributing 0.14 percentage points of positive growth to GDP) and finance and insurance (contributing 0.12 percentage points of positive growth to GDP), though these were offset by a fall in the professional, scientific and technical activities sector (contributing 0.19 percentage points of negative growth to GDP).

• The fastest growing service industry was air transport, which increased by 118.4% after it became easier to travel internationally; however, this sector is still very subdued compared with February 2020, before the coronavirus pandemic.

• Monthly manufacturing remained broadly flat in July 2021 leaving it 2.3% below its February 2020 level; the sector with the strongest contribution to growth was the manufacture of transport equipment sector.

• Monthly construction output fell by 1.6% in July 2021; anecdotal evidence was received from businesses suggesting that price increases and supply chain issues were the main reasons for the decline.

Although all coronavirus (COVID-19) restrictions were lifted in England on 19 July, all components of gross domestic product (GDP) are still below their level in February 2020. Construction was initially affected the most by the coronavirus pandemic before recovering strongly. While construction has fallen for the past four months, it is still performing more strongly than the Index of Services and Index of Production compared with February 2020 levels.

Monthly services output remained broadly flat in July, with the information and communication sector providing the strongest positive contribution to the index of services, and professional, scientific activities providing the largest negative contribution (Figure 2). Services output in July 2021 remained 2.1% below its February 2020 level.

Whereas Figure 2 reports the impact (or contribution) of individual service sectors on growth in the index of services, Figure 3 shows the percentage change in output within each service industry (Figure 3).

Air transport, travel agencies and tour operators

The air transport industry grew by 118.4% between June 2021 and July 2021 (but contributed only 0.03 percentage points of positive growth to GDP) although output was still 77.2% below its February 2020 level (Figure 4).

Although international travel was allowed to resume from May 17, there were only 12 countries on the green list. However, by mid-July there were 29 countries on the green list.

Travel agencies and tour operators grew by 72.5% (contributing 0.04 percentage points of the growth in GDP), moving this industry to its highest level since March 2020.

Production output increased by 1.2% between June 2021 and July 2021, almost entirely because of strong growth in mining and quarrying (Figure 5). Production in July 2021 was 2.1% below its February 2020 level.

Extraction of crude petroleum and natural gas

The industry within the mining and quarrying sector that contributed most (1.2 percentage points) to the rise in production was extraction of crude petroleum and natural gas, which rose by 28.0%.

In June 2021, FPS Kinneil (the terminal that processes the entirety of oil and natural gas liquids from the Forties pipeline) was closed for maintenance. The terminal reopened for the whole of July, which resulted in the strong industry and sector growth. Most other industries saw relatively small changes in output although coal mining saw a large rise (Figure 6).

Manufacturing

Nine of manufacturing’s thirteen subsectors displayed a negative contribution to growth and the manufacturing sector as a whole saw output remain broadly flat. Manufacture of transport equipment provided the strongest positive contribution, however manufacturing output remained 2.3% below its February 2020 level (Figure 7).

Manufacturing demand split by domestic and export turnover

In July 2021 there was strong growth in export manufacturing sales, however there was a slight fall in domestic sales (Figure 8). Both have recovered from their low in April 2020.

Monthly construction output fell by 1.6% in July 2021, because of declines in new work (1.1%), and repair and maintenance (2.4%). Anecdotal evidence was received from businesses suggesting that price increases and product shortages caused by supply chain issues were the main reasons for the decline.

There were some themes that were applied across many different industries, however while the anecdotal evidence suggests that these themes played some part in the performance of the economy, it is difficult to quantify such an effect across and within industries.

Covid-19 self-isolation

There was a substantial rise in anecdotal evidence from businesses that customers had cancelled appointments at short notice, or that their staff or the staff of other businesses they wished to buy products from had been required to self-isolate because of coronavirus (COVID-19).

The problems seemed to be more consequential in the service sector, with hairdressers in the personal service activities industry being particularly affected.

Microchips

For some time, we have reported that the automotive industry has struggled to source microchips. In our Coronavirus and the impact on output in the UK economy: June 2021 article, we reported that this issue had led to supply issues for businesses involved in the wholesale and retail of new and used cars.

Car retailers reported similar supply issues in July, so when coupled with the increase in demand for used cars, this led to a 7% increase in their price between June 2021 and July 2021. For more information, you can view our Consumer price inflation time series.

The shortage of microchips has also spread to other industries. For example, some businesses involved in the manufacture of parts and accessories for motor vehicles have reported a reduction in demand for their products because manufacturers are producing fewer cars.

Other industries have also reported that difficulties in sourcing microchips have led to them producing less. These industries include the manufacture of machinery and equipment, the manufacture of plastic products, telecoms activities and computer programming.

Labour supply

Businesses across many different industries have reported difficulties in recruitment, which has had an impact on their revenue. Such industries include restaurants, bars, hotels, architecture and engineering, manufacture of fabricated metal products, waste collection, and wholesale.

Employment agencies provided more detailed feedback, explaining that there are many jobs being advertised. This is confirmed by the Office for National Statistics' (ONS’) Vacancies and jobs bulletin, which explains that in May to July 2021 the estimated number of vacancies in the UK reached its highest level since records began in 2001.

Employment agencies also explained that there was a lack of candidates to fill the positions, partly because of EU nationals returning to their home nations and because of a perceived risk from the workforce in starting a new job if the economy slows down. Such difficulties had led to one business adapting their wage structure in order to attract new candidates. Employment agencies also explained that the shortage of candidates applied across every industry and affected temporary and permanent roles, with the care sector experiencing particular issues.

The Monthly Business Survey (MBS) is the primary data source for 75% of production industries and 50% of services industries. This is an online questionnaire where businesses are asked to provide their turnover and, if they are within manufacturing, export turnover.

Survey response

Response by turnover for services industries in July 2021 was 84.0%, which is higher than the 77.9% achieved in July 2020 (see Historical MBS (services) response rates). Response by turnover for production industries in July 2021 was 85.9%, up on the 81.0% achieved in July 2020 (see MBS (production) response rates). The response by turnover for the construction industries for July 2021 was 73.5% (see the Construction output in Great Britain: July 2021 release).

Other data sources

Other data are primarily sourced from the Office for National Statistics (ONS). These include government expenditure, household expenditure and financial corporations expenditure, but also other bodies such as the Department for Transport, the Civil Aviation Authority and the Department for Business, Energy and Industrial Strategy. These account for 50% of services industries and 25% of production industries. We are also able to gain information from these data providers regarding monthly changes in their data.

We also use the fortnightly Business Insights and Conditions Survey (BICS) as part of our quality assurance and validation process.

Blue Book 2021

In Blue Book 2021 a new framework will be introduced to improve how we produce volume estimates of gross domestic product (GDP) for balanced years as part of the supply use process. This framework includes the implementation of double-deflated industry-level gross value added for the first time. This improvement will be reflected in the September quarterly national accounts and October monthly GDP estimates. On 8 September 2021, we published Impact of Blue Book 2021 changes on quarterly and monthly volume estimates of gross domestic product by industry, and these changes will be taken on in the next GDP monthly release, on 13 October 2021.