Yahoo Finance UK economy on brink of the first double-dip recession since 1970s
The UK economy fared much better than expected in November, as businesses successfully adapted to the reintroduction of lockdown restrictions.
However, experts warned the UK economy was still on track for its first “double dip” recession since the 1970s. Chancellor Rishi Suank repeated his warning that things “will get harder before they get better.”
The Office for National Statistics on Friday said UK GDP shrank by an estimated -2.6% in November. Economists had forecast a -5.7% decline.
November’s slump in output came as most of the UK returned to lockdown to control the spread of COVID-19. Non-essential businesses were shut in England between 5 November and 2 December, while similar restrictions were in place across the rest of Britain.
November’s GDP decline was much smaller than the slump of 20% seen in the second quarter of 2020 when lockdown was first introduced. The data highlights how businesses have learned to adapt to lockdown restrictions and reflects the fact the government has nuanced restrictions to support the economy.
Construction output continued to grow in November. Unlike the first lockdown, building sites were allowed to remain open in England during the second shutdown.
Services — which makes up the bulk of output and covers everything from waiting tables for practicing law — was the main drag on the economy, falling by 3.4%. Declines in hotels, food services, retail and the arts accounted for 80% of the services slump, the ONS said.
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While the data was better than expected, the UK economy could still shrink in the final quarter of 2020. November’s GDP slump erases the tepid growth of 0.6% seen in October. The Bank of England said last month it was expecting GDP to “contract by a little over 1% in 2020 Q4 as a whole.”
“With any post-lockdown rally in output in December constrained by the tougher tiered restrictions, including the introduction of tier 4 measures, the UK economy is likely to have contracted in the final quarter of 2020,” said Suren Thiru, head of economics at the British Chamber of Commerce.
November’s fall in GDP marks the first decline in output in six months. The economy was still 8.5% below pre-pandemic levels at the end of the month.
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“It’s clear things will get harder before they get better and today’s figures highlight the scale of the challenge we face,” chancellor Rishi Sunak said in a statement responding to the GDP figures.
“But there are reasons to be hopeful — our vaccine roll-out is well underway and through our Plan for Jobs we’re creating new opportunities for those most in need. With this support, and the resilience and enterprise of the British people, we will get through this.”
The return of even stricter lockdown restrictions at the start of January means the UK economy is almost certain to contract in the first quarter of 2021. Restrictions are set to be in place until at least mid-February and cabinet minister Michael Gove has suggested lockdown could last until the end of March.
Two consecutive quarters of shrinking economic activity would officially put the UK in recession for the second time in a 12 months — signalling a so-called “double dip” recession. The UK economy shrank by a fifth in the six months of 2020 as the COVID-19 pandemic first struck Britain, before rebounding strongly in the third quarter of 2020.
“A third lockdown means that a double-dip recession in the first quarter of this year may be inevitable, particularly if the current post-Brexit disruption persists through the quarter,” Thiru said.
The UK last suffered a double dip recession in the 1970s, triggered by the 1973 oil embargo and industrial unrest. Economists initially thought Britain suffered a double dip recession in 2012 — in the wake of the financial crisis and the EU sovereign debt crisis — but it was subsequently revised away.
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