UK at risk of double-dip recession as economy shrinks in November


The UK economy shrank for the first time in six months in November and risks entering a double-dip recession even though the latest contraction was less severe than expected and much milder than in the spring.

UK output fell 2.6 per cent compared with October, the first contraction since April’s lockdown, data from the Office for National Statistics showed on Friday. October’s growth figure was revised up from 0.4 per cent to 0.6 per cent.

Output was 8.5 per cent lower than in February, before the UK’s first lockdown, suggesting the economy faces a long road to a full recovery.

The monthly reading was more modest than the 5.7 per cent contraction forecast by economists polled by Reuters, thanks to growth in the manufacturing and construction sectors. The fall in services sector output was also much milder than expected, as businesses adapted to social-distancing measures.

Paul Dales, chief UK economist at the consultancy Capital Economics, said: “The economy has built up a fair bit of immunity to lockdowns.”

The contraction in gross domestic product reflects a four-week lockdown in England that began on November 5 and tight restrictions in the rest of the UK. It ended a run of slowing monthly growth following April’s 20 per cent plunge in output.

However, economists expect the downturn to continue as more stringent measures have been introduced to deal with soaring coronavirus infections.

Line chart of Index, 2018=100 showing UK economy shrinks less then expected

James Smith, research director at the Resolution Foundation think-tank, said: “The sharp GDP fall in November as England entered its second national lockdown suggests that the UK is in the midst of a double-dip recession as it starts the year with even stricter restrictions.”

Dean Turner, economist at UBS Global Wealth Management, said: “Looking ahead, even tighter Covid-19 restrictions and Brexit disruption point to the economy contracting yet again in the first quarter of 2021.”

He added: “However, the situation is vastly different to last spring, as firms and households are better prepared for the current restrictions, which means that any economic weakness is likely to be significantly less.”

In addition to the lockdown, “temporary and permanent adjustments [after the] post-Brexit transition period are likely to also weigh on growth in the early part of 2021,” said Rory Macqueen, principal economist at the National Institute of Economic and Social Research. However, he added that the rollout of vaccines provided some encouragement for the second half of 2021.

The UK was officially in recession — defined as two consecutive quarters of economic contraction — in the first half of 2020.

The relatively mild drop in output in November reflected more targeted lockdown measures in October that left manufacturing, education and construction sectors largely open.

Manufacturing output rose 0.7 per cent in November compared with the previous month, with strong car production bolstered by foreign demand.

In November, output in the automotive industry grew to above pre-pandemic levels, resulting in growing imports of components as car manufacturers began stockpiling cars and parts in preparation for the end of the post-Brexit transition period at the end of December.

Line chart of Index, Feb=100 showing Construction continued to expand in November

Construction also expanded rapidly, supported by a strong housing sector and growth in infrastructure spending. The sector provided the strongest positive contribution to the month-on-month change in overall output in November.

In contrast, output in the services sector fell 3.4 per cent compared with the previous month as businesses felt the impact of the restrictions.

But this was a better reading than the 6.7 per cent fall that analysts had expected, and much milder than the double-digit fall in the spring, partly thanks to growth in warehousing and transportation driven by Black Friday and early Christmas shopping online.

Darren Morgan, director for economic statistics at the ONS, said that “many businesses adjusted to the new working conditions during the pandemic, such as widespread use of ‘click and collect’ as well as the move online”.

A Financial Times survey of economists showed that most companies do not expect to reach pre-pandemic levels of business until at least late in 2022.

Rishi Sunak, UK chancellor, said: “It’s clear things will get harder before they get better and today’s figures highlight the scale of the challenge we face.”

Monthly GDP data are not available for most countries, but industrial production figures have shown that the eurozone has recovered to levels similar to those in November 2019. Industrial output was 4.7 per cent below that mark in the UK. 


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