Molly Darlington / Reuters
- The UK economy shrank 2.6% in November, when England entered another blockade.
- Britain is on the verge of a double-dip recession and is facing a harsh winter with the rise of COVID cases.
- However, a quick vaccine launch can help the economy recover in the spring and summer.
The UK economy shrank 2.6% in November, as an increase in coronavirus infections and new restrictions took a heavy toll, according to official data, putting the country on the path to a double-dip recession.
The November drop was considerably less than the 5.7% contraction that economists had predicted in a Reuters poll. But that means the economy was 8.5% lower than in February 2020, having been 6.1% lower in October, said the National Statistics Office.
Since November, the UK government has tightened blocking measures, which means that more pain is yet to come for the economy.
Ministers are focused on launching coronavirus vaccines, however, which they hope will allow growth to begin to recover in the spring.
The 2.6% contraction in November, when England was put on a one-month block, followed an expansion of only 0.6% in October.
Britain’s important service sector shrank 3.4% in November, ONS said, but the production sector contracted only 0.1%.
Read More: Morgan Stanley says it will buy these 26 economically sensitive stocks, which are expected to outperform, with oil prices rising 10% by the end of the year
This puts the UK on the path to a double-dip recession – with the economy ready to enter a sustained period of contraction after returning to growth in the third quarter of 2020.
Coronavirus cases have soared in recent weeks, thanks in part to a new, more infectious variant. More than 370,000 people tested positive in the past seven days, while more than 7,500 people died, a 50% increase from the previous week.
Commenting on economic figures, Chancellor Rishi Sunak said: “Of course things will get more difficult before they get better and today’s numbers highlight the scale of the challenge we face.
“But there are reasons to hope. Our vaccine distribution is well underway and, through our employment plan, we are creating new opportunities for those most in need,” said the finance minister.
The UK economy shrank at a record pace of around 20% in the second quarter of the year, before growing by around 16% in the following three months.
But many economists now predict that gross domestic product shrank in the last quarter of 2020, and many say the tendency is to contract further in the first three months of 2021.
The pound fell on Friday morning, dropping 0.2% on the day against the dollar, to trade around $ 1.3663, although it rose from a session low of $ 1.3659.
The FTSE 100 fell 0.42% at the opening as traders digested the data. The UK’s 10-year reference gold yields were slightly lower, at around 0.287%.
Many analysts pointed out that the GDP drop in November was not as bad as expected. Alpesh Paleja, chief economist at the United Kingdom’s Confederation of British Industry, said the impact of more flexible restrictions in November was “significantly less than the slowdown seen in the spring”.
“The steps taken by companies earlier this year to make their operations COVER-proof – combined with the limited nature of restrictions and schools remaining open – have meant that more companies have been able to continue trading safely.”
However, Goldman Sachs predicted last week that the new countrywide blockade implemented earlier this month would cause the UK economy to shrink 1.5% in the first quarter of 2021.
Read More: A former journalist who worked his way to become one of the best stock pickers for small businesses on Wall Street told us the 4 pillars of the approach that is surpassing 98% of its competitors
“We estimate that the economy will be around 11% below the pre-COVID level at the end of the first quarter,” said Goldman Sachs.
“The fundamental reason is that the activity in the UK depends more on consumer spending sensitive to greed than any other big advanced economy.”
The Bank of England increased its bond buying program by £ 150 billion ($ 205 billion) in November in an attempt to ease economic conditions amid new blockages.
On Tuesday, BoE Governor Andrew Bailey said Britain was facing a “very difficult period”. However, he said that “the darkest hour is the one before dawn”.
Bailey said on Tuesday that there are “a lot of problems” with cutting interest rates in negative territory from the current record level of 0.1%. Your comments helped a lot.