Britain’s economy is heading for a prolonged recession lasting until next spring as the number of coronavirus infections climbs and tougher restrictions are introduced to contain the virus.
As a Covid-19 second wave spreads and the government launches fresh measures to restrict business and social life, City economists warned that the fightback from the deepest recession in history begun this summer was running out of steam.
Dashing hopes that the Covid recession could be among the shortest downturns in history, analysts from Bank of America said growth in gross domestic product (GDP) would probably stall in the fourth quarter and the first three months of 2021.
Robert Wood, the chief UK economist at the bank, said: “We struggle to see how the economy can grow in the fourth quarter with escalating lockdown measures, fading stimulus and Brexit risks.”
Britain’s economy entered the deepest recession since records began after shrinking by more than in any other major nation in the second quarter. GDP fell by 20.4% after a decline of 2.2% in the first quarter. Economists consider two consecutive quarters of shrinking GDP as the technical definition of a recession.
Growth rapidly recovered after the lifting of lockdown restrictions over the summer, helped in August by the government’s “eat out to help out” restaurant discount scheme, putting the UK on track for the fastest growth in the G7 in the three months to September.
However, analysts said the recovery would probably stop as restrictions are reintroduced and infections climb, ensuring that the country remains in recession until at least next year. Two quarters of positive growth are required to confirm a technical exit from recession.
Wood said the UK had “overshot the equilibrium” as the economy grew at a faster pace than was compatible with keeping the virus under control. Suggesting that the eat out to help out scheme could have boosted infections, he added: “The timing may be a coincidence but Covid cases spiked shortly after restaurant bookings soared in late August, suggesting the limits to sustainable economic activity.”
Paul Dales, the chief UK economist at the consultancy Capital Economics, said the new 10pm nationwide curfew on pubs, restaurants and bars, and requiring people to work from home if they can, could mean no increases in GDP in October, November or December.
He said a potential “circuit break” lockdown in late October could trigger a 5% plunge in monthly GDP and delay the time taken until Britain’s economy returns to pre-pandemic levels until 2023.
