The second wave slows recovery in Britain

By Kallum Pickering

The number of new cases in Britain has risen sharply since early December, and in response to this situation, the government has imposed more restrictions on regions of the country. Major financial centers such as London, Birmingham and Manchester are under Level 3 restrictions, as they are called, which means that travel is severely reduced and hotels, restaurants, bars, pubs and cafes are closed. The measures will remain in force until the reversal of the course of the cases begins. Of course, things do not seem to be the same as in the spring with the first wave of coronavirus, so the blow to GDP in the last quarter is estimated to be less than we originally expected. Despite the closure measures in the cities and regions of England in November, the data of the Statistical Service show that the retail sales decreased by only 3.8% on a monthly basis. And we say “just”, because in the first quarantine in April the corresponding reduction was of the order of 18.1% on a monthly basis.

The Composite Procurement Managers’ Index rose slightly to 50.7 points in December, reflecting to some extent the deterioration of cases and we expect that in the fourth quarter of the year (ie the period October – December) real GDP will be reduced by 3% on a quarterly basis. compared to our initial estimate for a shrinkage of 5.5% (on November 2 and before the quarantine was imposed on November 5). Although the impact in the last quarter of 2020 is estimated to be smaller, the outlook for the beginning of the new year is now less auspicious. Although improved weather and progress on vaccination of the most vulnerable will help alleviate pandemic risks by the end of the first quarter of 2021, the likelihood that tough measures will remain in place across the country will negative impact on growth during this period. Initially we had forecast GDP growth in the period January – March by 5.5%, but we are adjusting it to 3%. However, to a large extent the loss of the first quarter of 2021 will be gradually offset over the course of the year, while the risk of a pandemic is eliminated. In the second quarter of April – June 2021 we forecast today that the UK economy will have a growth of 6% compared to 4.1% of our previous forecast.

Despite short-term threats and uncertainty over both the pandemic and Britain’s exit from the EU, the medium-term outlook for the country remains favorable, with corporate and household support measures by the government and the Bank of England being extended. and in 2021.

* Mr. Kallum Pickering is an economist at Berenberg Bank.