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
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.