New lockdown puts UK on course for a double-dip recession

The third English lockdown looks set to put the UK on course for a double-dip recession in the first quarter after a “downbeat” end to 2020, according to a report.

A survey by the British Chambers of Commerce (BCC) found nearly half of all firms (43%) saw sales fall in the final three months of 2020, rising to more than three-quarters (79%) in the hospitality and catering sector.

This compares with 66% of hospitality and catering firms in the third quarter.

Its quarterly economic survey revealed the toll taken on consumerfacing firms from the No v e m b e r lockdown, with the latest restrictions adding to their misery.

Some 26% of the 6,203 firms polled for the survey reported rising sales, while 30% said there was no change.

Suren Thiru, head of economics at the BCC, said: “These results indicate that economic activity was strikingly downbeat in the final quarter of 2020 as the reintroduction of tighter coronavirus restrictions weighed heavily on the key drivers of growth.

“The services sector endured a particularly difficult quarter, with consumer-facing businesses most severely exposed to the renewed restrictions.

“Though the vaccine rollout provides real optimism, a new national lockdown means that a significant double- dip recession in the first quarter of this year is looking increasingly likely,” he added.

The survey took place during the second lockdown in England and 94% of respondents were small businesses.

Meanwhile, exper ts said gross domestic product (GDP) – a measure of the size of the economy – is now set to fall in both the final quarter of 2020 and first three months of 2021, plunging the UK back into recession, as defined by two successive quarters of falling output.

The economic woes are likely to see pressure mount on the Bank of England to take further action, with speculation swirling once again over the possibility of negative interest rates in the UK.

Economist Allan Monks at JP Morgan is predic ting the latest Covid-19 measures will see GDP slump by around 2.5% in the first quarter of 2021.

He said the third lockdown would “hit the economy harder” than in November due to the school closures and tightened measures.

Mo s t experts are already predicting a small fall in GDP in the final quarter of 2020, with the Bank of England last month predicting a 1% decline.

While the drop is far lower than the GDP fall seen amid last spring’s lockdown, wh e n the economy plummeted by nearly a fifth, it comes as output is still a long way from regaining its poise.

Suren Thiru, head of economics at the British Chambers of Commerce.