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GDP, covid, lockdown: why the UK economy was always likely to be hit harder than most other European countries. A thread
UK household expenditure has fallen further than other major European economies. Driving down GDP. What is going on? 1/24
UK household expenditure has fallen further than other major European economies. Driving down GDP. What is going on? 1/24
The lockdowns across Europe are broadly comparable in both strength and length. Household expenditure is largest single component of GDP. Accounting for around 2/3 of the total. Weak UK household spending has been identified by others as issue. 2/24
Said that UK consumers are more fearful of covid. Maybe, but can also be other statistical oddities at play. Covid is not a normal event in economic cycle. Artificial reduction in demand due to lockdown. Heavier impact on certain sectors. Huge government support. 3/24
Household expenditure can be broken into 4 groups; non-durable goods (food, energy, fuel), semi-durable goods (clothes, small household items, toys), durable goods (cars, furnishings, white goods, TVs etc), and services (transport, finance, recreation, leisure) 4/24
At national level this is breakdown of UK household expenditure in normal times (2019). Could be said to be average consumer. But nobody will recognize this as their spending. 5/24
Compared to others UK consumers spend relatively more on services and relatively less on non-durables. 6/24
Food, alcohol & tobacco in particular are relatively ‘cheap’ in the UK. 7/24
Eurostat data is clear that across continent covid has hit household expenditure on services hardest. 8/24
ONS data on the UK offers a detailed breakdown. Can see which services have been most impacted. Seems a safe assumption that this will be similar across other countries. 9/24
Weighting by expenditure shares shows much each of these categories contributed to the total fall in expenditure on services in the UK. 10/24
Travel fares, eating out, sports, recreation and culture banned or discouraged. Looking at total household exp still clear that these groups highlighted in orange driving the fall. Hospitality, culture & sports tickets and travel tickets are the ‘Locked-down services’. 11/24
With people across the continent prevented or discouraged from travelling, eating out or going to concerts, museums, sports matches should there not be a similar impact everywhere? Yes and no. 12/24
Yes, you would expect level of fall to be roughly equal across continent. However, for the overall impact expenditure share is important. Remember the UK spends relatively more on services. And which services does it spend relatively more on? 13/24
Breaking this down further 14/24
For every £ a UK consumer spends on transport tickets a German spends 80 pence. A French consumer spends 76 pence for every £ a Brit spends in restaurants. An Italian spends £1.65 for every £ a Brit spends on hotels. 15/24
Certain expenditure will have been broadly stable through the pandemic: housing, food, energy bills, education, finance & insurance, phone & internet bills. UK consumers spend relatively less on these. 16/24
A higher share of expenditure on goods and services not impacted by the lockdown will dampen impact on household expenditure and ultimately GDP. Accurately adjusting for these issues requires more data than is currently available. 17/24
However, a rough calculation - if UK consumers spent same share as Germans on locked-down services and stable services then would knock approx 2 % points of the UK fall in expenditure. 18/24
Conclusions: Covid has hit UK consumer expenditure harder partly due to nature of lockdown and structure of UK consumer spending. In short locked-down services are bigger part of the UK economy. 19/24
Strengthening of lockdown in 2020 Q4 and 2021 Q1 will see this impact roll on in data. Correlation is not necessarily causation, but this effect appears visible across Europe. 20/24
Lifting restrictions on airports, trains, stadiums, pubs will see stronger increase in UK household expenditure + greater GDP recovery. Bigger drop = bigger rise. Negative lockdown expenditure impact also means bigger impact on savings. Rise in UK savings rate far greater 21/24
Does not mean that the fall in UK expenditure is not real. But analysis must go deeper than pure headline measure. Yes, UK consumer spending is weaker than elsewhere but that would have always been case with lockdown due to its nature. 22/24
Health warning added uncertainty in all data currently. Treat all data and analysis based on it with extra caution. 23/24
This thread has been assisted by several people. Thanks to all. END. 24/24
