While browsing the website of the prestigious Bank of England, I happened to come to the following interesting study on the U.K. economy published by the Bank based on its 12 agents’ discussions with at least 700 businesses across the UK for the first quarter of 2021. The heads covered were consumer demand, business, and financial services, manufacturing, construction, corporate financing conditions, property markets (housing market and commercial property), investment, employment and pay, and finally costs and prices. You may refer to the website as given below for a detailed study:


Some general observations on the overall economy of the U.K. are given as a welcome statement. U.K. economy is slowly but surely returning to its normalcy.  Let us not forget that Indians constitute the largest investors of the U.K. economy and we have the longest historical link with England.

From the report only,

  • “During the early stages of the pandemic in 2020, economic activity fell at an unprecedented pace, reflected in some Agents’ scores moving to the extremes of their range, where scores can be consistent with a wide range of quantitative outcomes.
  • Although activity has recovered relative to the troughs in early 2020, a number of the Agents’ scores have remained very low. In part, that reflects activity in some areas remaining consistent with the extremes of their distribution, despite the recovery – especially as most scores compare the current situation with a year ago.”

Let us analyze head wise report:

1. Consumer demand

“Spending on consumer goods and services continued to be weaker than a year ago, as stores and venues remained closed due to Covid-19 (Covid) restrictions, but there were signs of demand re-emerging in some sectors.”

Explanation and more focused information:

What were the weak areas of sales? Expectedly, in store sales for non-essential retailing echoed a wailing sound although its online sales continued to grow and increase compensating the other one. Were the sales of clothing or cars particularly weak? Yes.

However, sales of household, technology, home improvement, and sports along with leisure goods did show a promising increase in demand.

2. Business and financial services

Overall statement as per BOE is given below:

“Overall, business services activity remained weaker than a year ago. Activity in some sectors held steady or improved, though Covid-related restrictions and the adjustment to new trading arrangements with the EU weighed on activity in some areas.”

Let us understand in a layman’s language.

Did any sector show some improvement at least?

Banking, insurance, asset, and financial management remained stable over the last few months.

Accountants, legal services reported good demand due to withdrawal of U.K. from EU over corporate matters. Digitalization and remote sensing were beneficiaries due to Covid related economic atmosphere though there is a strong aspiration towards returning to normalcy due to reduced Covid effects and continued supervision by the government.

3. “Manufacturing output remained markedly weaker than a year ago, reflecting a variety of factors relating to EU withdrawal and Covid.”

Though it is expected to improve over the next 12 months, currently sectors like food services, civil aviation, and utilities show depression. Automotive due to lack of supply of semiconductors, industrial chemicals, pharmaceuticals, mining and quarrying and customs declarations, rules of origin, and product labeling arrangements also inhibited signs of restlessness.

4. “Construction output continued to be lower than a year ago, partly due to subdued demand from sectors worst affected by Covid, though public projects continued.”

Private commercial works, public infrastructure projects, private home building or demand for home improvements showed signs of improvements though compared to last year a bit lower in scale.

5. Corporate financing conditions: “Demand for credit increased slightly; credit availability tightened for sectors most affected by the pandemic.” Credit demands from small and medium companies expectedly showed increasing signs of demand due to deferred payments like rent even in spite of government lending schemes trying to meet their demands.

Due to the appetite from debt and equity market customers, big and medium corporates enjoyed the confidence of the market. Due to government schemes, the availability of trade credit insurance showed signs of stability. Retailers, hospitality, and construction firms received cautious reception from insurers.

6. Property markets: “Demand for housing remained strong, but investor demand for commercial property was mixed.” Coronavirus Job retention scheme and property transaction tax holiday seem to have resulted in improvements in the housing market. Due to high demands for rental properties, rents had also gone up.

7. Commercial properties: “There were some reports of interest from overseas investors for property in prime locations or prime office or industrial premises, especially those with existing tenants. Demand for industrial, distribution and science-related premises continued to be very high, leading to an increase in speculative developments.” Since the official quotation speaks by itself, I did not add any further explanation.

8. Investment: “Companies’ investment intentions picked up modestly but remain weak, with plans mostly conditional on demand recovering over the coming months.” What are the areas showing promising signs of increased investment? Manufacturers due to easing of Covid restrictions by the government to increase efficiency and capacity showed the strongest intentions to invest while the least intention was shown by consumer services firms. Manufacturing as reported already has the intention to invest in technology, research, and development, or to increase physical capacity. IT and digitalization have shown the door for enormous growth due to Covid effects of working from home or development in E-commerce and remote working. Expectedly, retailers, hospitality and travel the most affected sectors due to pandemic are struggling to come out of adverse business conditions though with the government going all out to open up the economy has made its intentions clear to fasten up the economy and increase cooperation among its citizen.

9. Employment and pay:” Employment intentions remained weak but are improving: pay growth was subdued but some contacts plan modest increases this year”.

Though subdued economic conditions did not envisage an increase in salary, signs of the improved economy during the current year along with demand for experienced and skilled employees foresees an increase in paying them.

10. Costs and prices:” Contacts reported significant increases in raw materials costs, but so far there is limited evidence of higher costs being passed on to customers due to competition and uncertainty about demand. Contacts said that the rise in input costs was widespread. Freight costs for sea, air, and road transport had increased over the past few months, as had warehousing costs. And the new trading arrangements with the EU were likely to exert further upward pressure on costs.” Reports of large increases in material and commodity prices for example steel, timber, copper, and agricultural commodities, reflecting a recovery in global demand portend better economic revival in the near term.


The intention of this article clearly lays down its boundary as the feel of Bank of England over U.K. economy purely on the basis of its 12 agents who interacted with 700 business across the whole of the U.K. indicating huge expectations from actual businesses who live and breathe business. Let us use it as a motivation for Indian business which is still struggling to have a regular economical cycle though the outside world predicts far better economic growth for India than other nations in the coming quarters of 2021 and 2022. But the limiting factor would invariably rely on our ability to contain Covid than allowing its alluring guise unlimitedly over our population.

Privacy statement

The above article is purely based on information collected from the Bank of England website by me and due reference has also been given. This is my way of looking at the state of the U.K. economy. Neither taxguru.in nor I give any legal advice. One can easily refer to the original website for a clearer perception. 

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Company: subramanian natarajan cpa firm
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Member Since: 09 May 2017 | Total Posts: 234
A banker with 27 years of experience, a CPA from USA with specialization in US taxation, individual, partnership, S corporation or LLC taxation etc View Full Profile

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December 2023