Written by Mr. Kunal Sawhney, CEO, Kalkine Group
The national economic output of the United Kingdom has been thoroughly dependent on the growth of the services sector as nearly 80% of the contribution in the UK GDP has been derived from the businesses operating within the services industry. With the gradual reopening of the sector, the enterprises have been able to operate with minimised restrictions for the first time in 18 months due to the still-evolving nature of Covid-19 (SARS-CoV-2) virus, its mutating variants and the subsequent sub-lineages.
Of the multiple components cumulatively forming the services sector of the UK, transport & storage, and accommodation & food services activities are likely to spearhead the national economic economic recovery from the pandemic-laden troughs following the withdrawal of lockdown restrictions, eased border movements and termination of social distancing mandate from the government.
The enterprises and corporations facilitating food services, local transport, international travel and accommodation have been the worst hit during the national lockdowns, as well as Covid-induced restrictions as they have to curtail their operations with respect to the persisting guidance.
The present calendar year, touted as the year of recovery from the pandemic disruption, has seen month-after-month improvement in the national economy with the national GDP rising in all months, barring January’s slump and marginal correction in July. The contraction in the GDP in January of 2021 was primarily due to the imposition of the third national lockdown by the government of the UK, in order to contain the soaring rate of infection and hospital admissions.
As a result of national lockdown, massive disruption in international travel, as well as trade due to border restrictions and initial impact of Brexit, the economic output saw a de-growth of 2.4% as movement of goods was partly affected due to temporary closures in the adjacent borders including that of France.
During the corresponding time, the number of people travelling overseas dropped very sharply as the UK government, as well as the jurisdictions across the world announced stern restrictions on the passengers travelling from the British region to other parts of the world.
Following the exit roadmap laid out by the government and the subsequent structure of phased easements, the businesses were able to restart their operations after the elongated period of disruption. Most of the consumer-facing businesses, that have faced a bundle of difficulties during the pandemic era, are now in the operative stage and are eagerly looking forward to maximising the opportunity to revive their financials.
The consumer-facing enterprises have a considerable window of growth as the cumulative output of such services remain 4.7% below as compared to the pre-Covid era. According to the initial estimates by the Office for National Statistics (ONS), the UK GDP expanded by 0.4% in August of 2021 with the output from the services sector growing by 0.3%. Of the total surge in the services sector output, the out-turn of consumer-facing services witnessed a growth of 1.2%.
The UK GDP has been expanding continuously after January’s distress, the marginal drop in July was largely due to the widespread emergence of coronavirus cases associated with the Delta variant across the UK, followed by the pinging activity by the National Health Service (NHS). The national GDP is likely to bounce back very sharply by the end of March 2022 as the current economic output in August 2021 remains 0.8% below as compared to the pre-pandemic mark, February of 2020.
Accommodation and food service activities have played a significant role in expansion of the services sector as most of the businesses operated with no or very low restrictions for the first time in the 18-month-long course of the pandemic. It is quite evident as accommodation and food services grew by 59.9% in the three months to August of 2021, effectively supporting the services output which expanded by 3.7% in the corresponding duration.
The services sector of the UK has been at the forefront, leading the economic recovery from the Covid bottoms as it has majorly contributed to the 2.9% growth in the national GDP in the three months to August 2021.
With the set travel relaxations provided to the passengers travelling overseas from the UK government, as well as the regional jurisdictions at various destinations is highly likely to augment the total number of passengers uplifted by the airplanes, effectively boosting the footfalls and spending by the consumers ahead of the year-ender holidays and Christmas season.
Supplementing the shift in spending patterns by the consumers, the travel agency, reservation services providers and tour operators have reported a growth of 47.9% in August, as compared to the July levels. Such enterprises are expected to provide invariable support to the national economic output as consumers are more willing to travel than at any other time during the pandemic as most of the European nations have maximised their immunised blanket in the meantime.
Food and beverage services are expected to remain an integral part of the growth as most of the hospitality settings including the transport, accommodation, travel, sports venues also drive their revenues by clubbing the costs of catering. In August itself, the food and beverage service activities expanded by 5.9%, productively amplifying the output of the broader component of the services sector — accommodation and food services. However, the major addition came from the growth in hotels and campsites which registered a jump of 22.9%.
The air transport services are likely to see a meaningful upsurge in the following months as the government has eased the self-isolation guidance on returning to the British region. The air transport services are poised to grow in the upcoming quarters as the proportion of travel witnesses sharp growth in the terminal quarter ahead of the Christmas season. The likelihood of growth is even more as the component’s net contribution remains 75% lower as compared to the pre-Covid level.