DOUBLE DIP RECESSION ON THE WAY
... with Lockdown 3 set to cost us £390million a day after Britain shuts up shop
THE UK faces plunging into its first double-dip recession since 1975, with the latest lockdown expected to cost almost £400million per day.
Output in the first quarter of this year will be £24.57billion lower than it would have been without the third national lockdown, a think-tank warned yesterday.
The Centre of Economics and Business Research (CEBR) predicts that if the lockdown is lifted in mid-February, as Prime Minister Boris Johnson hopes, it will have cost the UK £390million every working day.
Business closures mean that output is likely to shrink by more than 4 per cent in the first three months of the year, according to the forecasting group Oxford Economics.
Although the economy should pick up later as the rollout of the Covid vaccine allows shops and restaurants to reopen, experts have already begun to slash their growth predictions for 2021.
Howard Archer, of the EY Item Club economic forecasting group, had previously pencilled in growth of 6.2 per cent for 2021.
But now, given the grim start to 2021, he doubts output – or gross domestic product (GDP) – will grow by more than 5.5 per cent.
Mr Archer said: ‘With restrictions now in place in most areas of the UK, the EY Item Club expects the economy will have a challenging start to 2021 and will likely see modest contraction in the first quarter. This would result in a double dip recession.’
A recession is defined as two consecutive quarters of economic contraction, and a new one would represent the first double- dip recession to hit the UK since 1975, when the banking sector was in crisis and the country was being rocked by a series of strikes.
The pandemic dragged the UK into its first recession for 11 years at the start of last year.
The country had a brief respite in the third quarter as the first lockdown lifted and the Eat Out to Help Out scheme encouraged Britons to spend.
But the economy is expected to have shrunk again in the final three months of 2020 as Covid restrictions were reimposed.
Last month, the Bank of England predicted a 1 per cent decline for the final quarter of 2020. But Mr Archer thinks the fall could be nearer 2 per cent.
Another contraction in the first three months of 2021 will put the UK back in recession.
Allan Monks, an economist at the investment bank JP Morgan, said the third lockdown would ‘hit the economy harder’ than November’s restrictions.
While the drop is lower than the huge GDP fall during last spring’s lockdown, when the economy plummeted by nearly a fifth, it comes as output is still struggling.
Even heading into the third lockdown, the economy is already at around 11 per cent below what it should have been. Concerns over the UK’s ’s lacklustre growth have renewed speculation that the Bank of England could cut interest rates to a minus figure to encourage spending rather than saving. The Bank’s base interest rate is already at a record low of 0.1 per cent. If it went negative, customers would effectively be paying to keep their money in the bank.
But despite the gloomy forecasts, there are some signs of light at the end of the tunnel. Mr Archer said: ‘We expect the economy to benefit progressively through 2021 from the rollout of the vaccine.’
Mr Monks added: ‘We assume the level of GDP at the end of this year will not be materially lower due to a successful vaccine rollout.’
However, any improvement at the end of the year could come to late for the stationery chain Paperchase, , which warned y yesterday it
was on the brink of collapse, putting 1,500 jobs at risk. the firm, which has 127 branches, confirmed it had filed a notice to appoint administrators, which gives it protection from creditors for ten working days so it can formulate a rescue plan.
It said the Government’s coronavirus restrictions had put an ‘unbearable strain’ on business, with Christmas closures followed by the latest lockdown proving the final straws. Paperchase struck a rescue deal with creditors in 2019, but its turnaround hopes were hit by the pandemic. Many stores are in airports and other transport hubs that suffered as commuter numbers plummeted.
the firm’s decision to take steps towards administration follow poor sales in November and December due to widespread store closures. those two months alone normally generate two fifths of its annual sales. A rise in online sales was not enough to cushion the blow.
A spokesman said: ‘Out of lockdown we’ve traded well, but as the country faces further restrictions for some months to come, we have to find a sustainable future for Paperchase
‘We are working hard to find that solution. this is not the situation we wanted to be in. Our team has been fantastic and we cannot thank them enough.’
A string of retailers has buckled in the face of the pandemic.
Despite government support of staff furlough, relief from business rates and protections from eviction, topshop owner Arcadia, department store chain Debenhams and Monsoon Accesorize were among other casualties last year.