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April marked the low point in terms of overall economic activity , with total output around 25 % below its pre-pandemic level , which briefly took the economy back to the size it was in 2002 .
Now that magnitude of economic contraction is well beyond anything that we ’ ve experienced before . For example , if you look back to the financial crisis in 2008 , the UK economy contracted by about 6 % or so , and that was the worst downturn for around 100 years .
Initially , the rebound after the first lockdown was pretty robust – economic output increased by about 20 % between April and the end of July . But unfortunately , after that , even before the second rise in infections and the pre-Christmas lockdown , the recovery lost a lot of momentum . For example , economic growth was about 6 % month on month in July . It slowed to 2.2 % month on month in August and then to 1.1 % in September and 0.4 % in October , even though at that point the UK economy was still more than 8 % smaller than before the pandemic .
In terms of the labour market , conditions have started to weaken more noticeably in the last few months . The unemployment rate moved up to 4.9 % in the three months to October . That ’ s well up on the 3.8 % average that we saw through 2019 , but it ’ s worth emphasising that this is still a much better outturn than seemed likely at the beginning of the pandemic .
This resilience is largely thanks to the wide-ranging policy response , and especially the furlough and self-employment income support schemes that have been crucial in protecting the labour market from the worst impacts . The recent extension of these measures is also going to provide valuable support for workers and for spending across the economy more generally in the coming months .
Nevertheless , further increases in the unemployment rate are likely , especially once government support starts to taper , although clearly an awful lot is going to depend on how the wider economy performs , and how policy evolves too .
Turning to the housing market …
Activity almost ground to a complete halt during the first lockdown , but since then it has rebounded strongly and maintained that momentum in recent months , despite the slowdown in the wider economy .
The number of mortgages approved for house purchase reached their highest level since 2007 in November , 60 % above the monthly average recorded in 2019 . These dynamics have also been reflected in house prices . House prices dipped in May and June by about 3 %, but that was quickly reversed in July and August . And we ’ ve seen further gains in recent months , with annual house price growth reaching 7.3 % at the end of 2020 , a six-year high .
Looking at the latest regional data , annual house price growth increased in all regions in Q4 ( October , November and December ) compared with Q3 ( July , August and September ).
Housing demand has been buoyed by a raft of policy measures and changing preferences in the wake of pandemic . The stamp duty holiday has stimulated demand by bringing forward peoples ’ home-moving plans . The pandemic itself also boosted activity , as life in lockdown and changes to working patterns led many to re-evaluate their housing needs .
We ’ ve conducted some surveys to explore these behavioural shifts , and the responses suggest that these factors could continue to be significant , providing they are maintained , and people act on them .
For example , in early September , about 10 % of people surveyed said that they were in the process of moving as a result of the pandemic and another 18 % of people said they were considering a move as a result of the pandemic . On balance , people were looking to move to less urban environments and that was true across tenure types , and we saw that trend increasing with age .
The value that people place on different property characteristics also seems to be shifting . People starting to pay or attach more value to things like outdoor space , gardens and so on rather than proximity to work and transport networks , obviously due to shifts in ways and patterns of working for many people . This also helps to explain why detached properties have seen greater price gains in recent quarters , while flats have underperformed .
While the pandemic has prompted some to move or consider moving , others reported looking to modify their homes , for example , by extending their homes or re-modelling to better suit their needs . Interestingly , within that , almost 40 % of the people that said they were looking to make changes to their home cited a desire to make their home greener , to reduce the carbon footprint of their home .
Where do we go next ?
The outlook remains highly uncertain . Much will depend on how the pandemic and the measures to contain it evolve as well as the efficacy of policy measures implemented to limit the damage to the wider economy .
Behavioural shifts as a result of Covid-19 may continue to provide support for housing market activity , while the stamp duty holiday will continue to provide a near-term boost by bringing forward home moves .
However , housing market activity is likely to slow in the coming quarters , perhaps sharply , if the labour market weakens as most analysts expect , especially once the stamp duty holiday expires at the end of March .