National measures could kill off economic recovery

A “CIRCUIT breaker” lockdown threatens to kill off the UK’S fragile recovery in the final quarter and slash £12 billion from economic output even if schools and essential workplaces remained open, experts have warned.

Oxford Economics, which forecasts growth of almost 3 per cent between October and December, said restrictions would leave the economy virtually flat as the measure slashes up to 2.5 percentage points off output over the quarter. Martin Beck, the group’s lead UK economist, said: “The economy would probably stagnate in the final quarter, or close to it. You are basically looking at an L-shaped recovery.”

Paul Dales, Capital Economics’ chief UK economist, also warned of a downward swing after a two-week shutdown in October, even if the economy recovered in November and December. Mr Dales said already modest forecasts of 1.4 per cent growth could be tipped into a 1.1 per cent decline.

Doug Mcwilliams, deputy chairman of the Centre for Economics and Business Research, estimated a lower direct effect if shops remained open, as activity has already been subdued by lower travel, restrictions on sports and entertainment as well as the 10pm curfew on bars and restaurants.

He estimated the direct impact could be around £1 billion a week, but the measure could have bigger long-term repercussions.

He said: “The main effect would probably come from people not moving around the country taking half term holidays. The bigger problem is the damage to profitability. And the damage to confidence from the switch being turned on and off constantly. This will hit investment, property values and longer term economic activity as a result.”

The Organisation for Economic Cooperation and Development added that while lockdowns have a “substantial impact” on output, letting a pandemic run its course without restrictions would also hit the economy hard.

The OECD already predicts a 10 per cent decline for the economy this year and warned that the crisis is “likely to reduce productivity and employment for several years”.