Dou­ble dip as growth is fore­cast to fall to 2pc

Econ­omy at risk of slip­ping into W-shaped cri­sis as an­a­lysts raise prospect of fall in GDP over win­ter

The Daily Telegraph - - Front Page - By Tim Wal­lace

Bri­tain’s V-shaped re­cov­ery is com­ing to a pre­ma­ture end as the rise in Covid cases and new lo­cal lock­downs threaten to send GDP into re­verse. It means growth na­tion­ally will slow from about 16 per cent in the third quar­ter to as lit­tle as 2 per cent in the last quar­ter. “A dou­ble dip seems an in­creas­ingly re­al­is­tic pos­si­bil­ity,” said Robert Wood, econ­o­mist at Bank of Amer­ica Mer­rill Lynch. The bank’s large-scale sur­veys of house­holds point to in­creas­ing fears over wages and jobs.

‘If hos­pi­tal­ity and re­tail businesses are fur­ther cur­tailed, this could be a real tip­ping point’

BRI­TAIN’S “V-shaped” re­cov­ery is com­ing to a pre­ma­ture end as the rise in virus cases and new lo­cal lock­downs threaten to send GDP into re­verse.

It means growth na­tion­ally will slow from about 16pc in the third quar­ter, as the re­bound got un­der way, to as lit­tle as 2pc in the fi­nal months of the year. GDP could even fall in some months, rais­ing the prospect of a “W-shaped” sce­nario. “A dou­ble dip seems an in­creas­ingly re­al­is­tic pos­si­bil­ity,” said econ­o­mist Robert Wood at Bank of Amer­ica Mer­rill Lynch.

The bank’s large-scale sur­veys of house­holds point to in­creas­ing fears over wages and jobs.

“Ac­tual and prospec­tive Covid re­stric­tions pushed our UK con­sumer con­fi­dence in­di­ca­tor to its low­est read­ing since May,” Mr Wood said.

“Con­sumers are dig­ging in for a longer wait for a ‘re­turn to nor­mal’ and vol­un­tar­ily pulling back. This sug­gests the eco­nomic im­pact of rising Covid cases will be larger than the di­rect im­pact of new rules.” Philip Shaw, at In­vestec, said the econ­omy was not likely to shrink in the fi­nal quar­ter of the year as a whole, be­cause even flatlin­ing GDP at Septem­ber’s level would leave the na­tion in a bet­ter po­si­tion than it was in the early days of the third quar­ter when re­stric­tions were only start­ing to lift.

How­ever, he warned the stop-start pat­tern of re­stric­tions could force a con­trac­tion in one of the clos­ing months of the year.

Kal­lum Pick­er­ing, econ­o­mist at Beren­berg Bank, noted that schools should be un­af­fected by the lock­down and that the NHS was un­der pres­sure to treat more non-covid pa­tients, which should keep GDP in these sec­tors grow­ing. The lo­cal na­ture of the new lock­downs com­bined with changed be­hav­iour should also soften the blow.

“It could be that peo­ple no longer go for drinks in the pub af­ter work, but they still want to en­joy them­selves on a Fri­day night so find a restau­rant to go to – as long as it is not pro­hib­ited, peo­ple will still find ways to spend money,” he said.

How­ever, he still ex­pected a “huge slow­down in growth” from rapid re­cov­ery over the sum­mer to a near-com­plete stand­still in the fi­nal months of the year. The im­pact will vary by area, with re­stric­tions con­cen­trated in ar­eas in­clud­ing North­ern Ire­land, with its “cir­cuit breaker” full lock­down, as well as Liver­pool at tier 3.

Stud­ies by the Cen­tre for Cities of ear­lier lock­downs in Aberdeen and Le­ices­ter show the ex­tent of the slump pos­si­ble in those ur­ban ar­eas with the tight­est rules.

Foot­fall in Aberdeen fell by around 80pc in the first lock­down, re­cov­ered to a loss of 40pc in the sum­mer be­fore strict lo­cal mea­sures came into place, and l ost again about half of that progress. But af­ter the mea­sures were loos­ened, re­searchers found a rapid re­cov­ery once more.

An­drew Carter, the think tank’s chief ex­ec­u­tive, ex­pects the big­gest ef­fect to be felt on the hos­pi­tal­ity in­dus­try in city cen­tres. “Hos­pi­tal­ity and re­tail businesses were get­ting by on con­sid­er­ably less foot­fall. If they are fur­ther cur­tailed plus some more work­ers who were go­ing back into city cen­tres stay away from the office, this could be a real tip­ping point,” he said.

It could also lead to a two-speed re­cov­ery, Mr Carter warned, as smaller towns and sea­side re­sorts have re­cov­ered more rapidly, while the big­gest cities – now fac­ing new re­stric­tions – failed to re­bound.

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