The UK economy has edged towards a double-dip recession after official figures confirmed a renewed slump in November fuelled by the second national coronavirus lockdown in England.
The Office for National Statistics said gross domestic product (GDP) fell by 2.6% month-on-month in November, when the government forced the closure of non-essential shops and the hospitality sector in England to combat rapid growth in Covid infections, and as tougher controls in Scotland, Wales and Northern Ireland weighed on growth. Reflecting the renewed controls amid the second wave of the pandemic, the latest official figures end six consecutive months of growth over the summer, when the UK economy had been recovering from the first wave of the crisis.
The impact of renewed restrictions took GDP in November down to 8.5% below its pre-pandemic level, in a setback for Britain’s economic recovery from the first wave of the crisis.
GDP fell by 3% in the first three months of 2020 and plunged by 19% in the second quarter during the first lockdown – the biggest decline in history and plunging the UK into recession, which economists regard as two consecutive quarters of falling GDP. Growth returned in the summer with a record 16% rise in the third quarter.
After the decline in November, some economists believe GDP could fall in the final quarter of 2020 and expect a further decline in the first three months of 2021 amid tougher lockdown restrictions, which would put the UK back in recession.
James Smith, research director of the Resolution Foundation, 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.
“But while the economic story today is of only the second-ever double-dip recession on record, the story of the year will be a vaccine-driven bounceback in economic activity for sectors like hospitality and leisure.”
However, the November drop in GDP was not as bad as feared, after economists polled by Reuters had predicted a 5.7% fall, which could mean Britain ultimately avoids the first double-dip recession since the 1970s.
Philip Shaw of the City bank Investec, said: “It would take a monthly drop in GDP of 1.0% or more in December to cause a contraction in the fourth quarter. The much awaited double-dip recession may not happen and our inclination right now is that it will not.”
According to the latest figures from the economy, pubs and hairdressers suffered the biggest impact during the second English lockdown in November, as the hospitality sector was forced to close or operate as takeaway-only. The service sector – which includes activities such as retail, hospitality and finance, and is typically the growth engine of the British economy – shrank by 3.4%, leaving output about 10% below pre-pandemic levels.
However, the ONS said many firms adjusted to the new working conditions during the pandemic, schools stayed open, and manufacturing and construction generally continued to operate, meaning the economic damage was significantly smaller in November than during the first lockdown. Industrial production – which includes manufacturing, as well as energy production – fell marginally, by 0.1%, while keeping building sites open boosted the construction sector with 1.9% growth on the month, taking output back above pre-pandemic levels.
Analysts said many companies had adapted well to the November lockdown in England. After Boris Johnson gave a lengthy notice period for the lockdown, which started on 5 November and lasted until 2 December, the first few days of the month were also been among the busiest days of the year for some companies, as consumers rushed to shops, pubs and restaurants before they closed.
The figures come as the chancellor, Rishi Sunak, comes under renewed pressure to provide additional financial support to businesses and workers struggling at the start of 2021 during the third national lockdown in England, as the cumulative impact of almost a year living through the pandemic takes its toll.
Sign up to the daily Business Today email
Anneliese Dodds, the shadow chancellor, said the UK had already had the worst recession of any major economy earlier in 2020 and was in danger of a “devastating double dip”.
“That’s the cost of this Conservative government’s incompetence and indecision. Instead of securing our economy, the chancellor is winding down economic support and hitting families with a triple hammer blow of pay freezes, a cut to universal credit and a hike in council tax,” she said.
Sunak said it was clear that “things will get harder before they get better” and that the latest official figures underscored the challenge facing the country.
He added: “But there are reasons to be hopeful – our vaccine rollout is well under way and through our ‘plan for jobs’ we’re creating new opportunities for those most in need. With this support, and the resilience and enterprise of the British people, we will get through this.”