Summary List PlacementThe UK economy shrank 2.6% in November as an increase in coronavirus infections and fresh restrictions exacted a heavy toll, official figures have shown, putting the country on track for a double-dip recession.
November’s drop meant the economy was 8.5% smaller than it was in February 2020, having been 6.1% smaller in October.
Since November the UK government has tightened lockdown measures, meaning more pain is yet to come for the economy.
Ministers are focused on rolling out coronavirus vaccines, however, which they hope will allow growth to start bouncing back in the spring.
The 2.6% contraction in November, when England was placed into a national lockdown, followed an expansion of just 0.6% in October.
Britain’s all-important services sector shrank 3.4% in November, the Office for National Statistics said, while the production sector contracted just 0.1%.
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It puts the UK on track for a double-dip recession – with the economy set to fall into a sustained period of contraction after returning to growth in the third quarter of 2020.
The UK economy shrank at a record pace of roughly 19.8% in the second quarter of the year, before growing by around 16% in the following three months.
But economists now predict gross domestic product shrank in the final quarter of 2020, and many say it is set to contract further in the first three months of 2021.
Goldman Sachs last week said the new country-wide lockdown put in place earlier this month would cause the economy to shrink 1.5% in the first quarter.
“We estimate that the economy will be around 11% below its pre-COVID level by the end of Q1,” Goldman Sachs said.
“The fundamental reason is that UK activity is more reliant on covid-sensitive consumer spending than any of the other large advanced economies.”
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Despite the immediate gloom, there is “light at the end of the tunnel,” said Deutsche Bank economist Sanjay Raja in a note this week.
“The vaccines roll-out should put an end to the start-stop recovery we’ve seen over the last year. The UK’s recovery won’t be smooth, however.
“The first quarter will start to lay bare the effects of Brexit as firms adjust to the UK’s new relationship with the EU. Trade frictions will lower exports.”
Yet he said Deutsche Bank expects a “material bounce-back in growth from Q2 onwards”.
The pound edged up, cutting some losses against the dollar to trade around $1.3668, up from a session low of $1.3658, but still down 0.1% on the day.
FTSE 100 futures fell 0.4%, pointing to a lower start later in the day in London. UK benchmark 10-year gilt yields were steady around 0.283%, just shy of this week’s one-month highs.SEE ALSO: Stocks are unlikely to repeat last year’s record-shattering performance in 2021 as a V-shaped recovery is largely priced in, Morgan Stanley says
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