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UK could avoid double-dip recession after resilient November

The UK economy looks likely to avoid a double-dip recession thanks to a better-than-predicted performance in November 2020, according to the EY Item Club.

The economy contracted just 2.6 per cent in November, despite the impact of a month-long England-wide lockdown and other restrictions across the UK.

As a result, it is expected the economy will have had a flat performance in the final quarter of 2020.

Although Covid-19 restrictions are expected to cause a three to four per cent contraction in the first quarter of 2021, the absence of a contraction in Q4 2020 means the UK could avoid its first double-dip recession since the 1970s, EY said.

EY estimated the UK economy shrank by a record 10.1 per cent in 2020 – an improvement on its December forecast of an 11.6 per cent contraction.

Howard Archer, chief economic advisor to the EY Item Club, said the UK economy had demonstrated resilience, and the impact of recent lockdowns had been nowhere near what it was last April.

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“Over the course of 2020, the economy has become quicker to adapt to new Covid-19 restrictions and while new restrictions may still cause disruption, lessons learned from previous lockdowns are rapidly put into place,” he said.

Archer said the prospect for recovery looked bright, adding: “The combination of vaccines, a UK-EU trade deal and previous lockdown experience means there’s much less uncertainty out there. Excluding the first quarter, the UK is looking at two years of strong growth.”

Unemployment to peak

EY’s Item Club said unemployment was likely to peak at seven per cent in mid-2021, before falling towards the end of the year.

Archer continued: “Seven per cent unemployment is high compared to recent years, but it’s not on the same scale as what was seen during the 1980s and it’s much lower than what was forecast at the outset of the pandemic.

“Government programmes, such as the furlough scheme, have helped keep job losses down so far. A lower unemployment peak means less long-term scarring for the economy.”

Elsewhere business investment is expected to improve in 2021 and then accelerate in 2022 as confidence is lifted by a firmer and more settled business environment.

EY forecasted business investment to expect 14.2 per cent in 2022 following a 1.8 per cent increased in 2021.

By Hannah Godfrey

Source: City AM

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UK economy saw partial recovery in Q3, recession risks ahead

Britain’s economic recovery from its coronavirus crash was quicker than previously thought in the third quarter, according to official data, but new lockdowns are threatening to cause a another recession.

Tuesday’s data also showed government borrowing sped up last month to pay for the mounting cost of the coronavirus crisis.

Gross domestic product grew by a record 16.0% from July to September, revised up from a previous estimate of 15.5%.

But that still did not make up for its 18.8% slump in the second quarter, when much of the economy was shut down.

Britain’s economy was hit harder by the pandemic than most others as it went into a longer lockdown. Only Italy has recorded more deaths in Europe.

Now London and nearby areas are back under tough restrictions as the government tries to slow the spread of a new variant of the virus that spreads more easily.

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Capital Economics, a consultancy, said a double-dip recession was a clear possibility if the latest COVID-19 restrictions continue into 2021.

The economy almost ground to a halt in October and is expected to shrink again in the fourth quarter as worries about the Dec. 31 deadline for a Brexit trade deal with the European Union compound the damage from COVID-19.

But Capital Economics said a high savings rate among households “provides optimism that as long as vaccines are effective and widespread, GDP will stage a strong rebound in the second half of next year.”

Tuesday’s data showed the economy was 8.6% below where it was at the end of 2019.

It also showed household incomes grew in the third quarter as workers returned from temporary layoffs. Consumer spending rose by almost 20%.

The Office for National Statistics also said Britain borrowed a record 241 billion pounds ($323 billion) in the first eight months of the financial year, nearly 190 billion pounds more than in the same period a year earlier.

Borrowing in November alone reached 31.6 billion pounds, up more than 40% from October as the government extended its job- retention scheme to cover workers hit by the latest lockdowns.

The deficit is on course to widen to about 400 billion pounds in the 2020/21 year, close to 20% of GDP, double the hit from the global financial crisis.

Public debt stood at almost 2.1 trillion pounds or 99.5% of GDP, the highest ratio since 1962.

Finance minister Rishi Sunak reiterated his pledge to tackle the huge shortfall, but not immediately.

“When our economy recovers, it’s right that we take the necessary steps to put the public finances on a more sustainable footing,” he said.

The International Monetary Fund has said Britain will probably need to raise taxes after the pandemic to fill the gap.

Britain’s current account deficit – one of the economy’s weak spots – widened to 15.7 billion pounds, or 2.9% of GDP.

($1 = 0.7462 pounds)

Reporting by Andy Bruce

Source: UK Reuters

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The UK economy is heading back into recession

The Bank of England is pumping another £150 billion ($195 billion) into the UK economy after warning of a double-dip recession because of the coronavirus pandemic and an uncertain outlook because of Brexit.

The UK central bank said on Thursday that it would keep interest rates unchanged at a record low of 0.1% but would increase its purchases of UK government bonds to £875 billion ($1.1 trillion).
Restrictions introduced to tackle a rapid rise in Covid-19 cases would weigh on consumer spending to a greater extent than the bank projected in August, “leading to a decline in GDP” in the fourth quarter of this year, it added.

England re-entered a national lockdown on Thursday, with restaurants, bars and non-essential businesses closed until December 2. The United Kingdom reported its second-largest daily increase in Covid-19 cases on Wednesday with 25,177 new infections recorded in 24 hours.
In a bid to soften the blow to households and businesses, UK finance minister Rishi Sunak on Thursday announced that the British government would extend its furlough program through March 2021. The government will pay 80% of the wages of employees of businesses forced to close, capped at £2,500 ($3,270) per month.

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The lockdown and unresolved talks on a post-Brexit trade deal with the European Union left the outlook for the UK economy looking “unusually uncertain,” the Bank of England said. Without an EU deal, UK-based companies face hefty tariffs, quotas and other barriers to doing business with the country’s biggest export market from January 1.
“It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. It also depends on the responses of households, businesses and financial markets to these developments.”
The central bank expects the economy to shrink by 2% in the fourth quarter, and by 11% in 2020.
Over the longer run, scarring caused by the pandemic will reduce the country’s economic output by roughly 1.75%. GDP is not expected to exceed the level it reached at the end of 2019 until the first quarter of 2022.
A survey of business activity published Wednesday showed the increase in private sector activity last month was the weakest since June, with new orders declining and employment dropping.

“November’s lockdown in England and a worsening Covid-19 situation across the rest of Europe means that the UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021,” said Tim Moore, economics director at IHS Markit, which compiled the survey.
The UK economy is expected to have rebounded strongly in the third quarter after suffering the biggest GDP fall of any major economy in the second. It also shrank by 2.5% in the first three months of 2020.

By Mark Thompson, CNN Business

Source: CNN

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