UK recovery in jeopardy as economy contracts in November

The groundwork has been laid for a double-dip recession in the UK as the latest figures showed the national lockdown in November caused the economy to contract for the first time in six months.

Office for National Statistics (ONS) data shows that UK GDP fell by 2.6 per cent in November, as vast swathes of the economy once again faced closures and reduced trade.

While the decline is a significant setback in the UK’s recovery from the coronavirus crisis, the size of the contraction is not as bad as feared by economists.

The consensus view was for a decline of between 4 and 5 per cent, almost double the ONS official figure.

The better-than-expected performance was driven by sharp sectoral differences, with sectors affected by social distancing restrictions faring poorer than those that were able to continue operating.

For example, the services sector saw a 3.4 per cent contraction in November, meaning it is now 9.9 per cent below pre-pandemic levels.

The production sector also fell marginally by 0.1 per cent month-on-month, remaining 4.4 per cent below February 2020 levels.

Conversely, the construction sector, which has been a key driver of the recovery since last summer, saw positive growth of 1.9 per cent in November and is now 0.6 per cent above pre-pandemic levels.

Contraction in the services sector was particularly pronounced in accommodation and food services activities, motor vehicles and retail trade, and other consumer facing industries.

Growth in the construction sector was mainly linked to infrastructure projects and private new housing, which were up 9.6 per cent and 4.7 per cent month-on-month respectively.

Commenting on the GDP figures, BCC head of economics, Suren Thiru said: “The latest figures highlight the continued damage being done to the UK economy by coronavirus.

“The decline in output in November was largely driven by the drag on activity from the second lockdown, with consumer-focused services firms, who are most exposed to lockdown restrictions, enduring a particularly difficult month.

“With any post-lockdown rally in output in December constrained by the tougher tiered restrictions, including the introduction of tier 4 measures, the UK economy is likely to have contracted in the final quarter of 2020.

“A third lockdown means that a double-dip recession in the first quarter of this year may be inevitable, particularly if the current post-Brexit disruption persists through the quarter.

“A clear and comprehensive plan is urgently needed to support the economy throughout this year.

“This should include closing the current gaps in government support and providing more significant grant funding to support cash strapped businesses.”