United Kingdom: Economic activity deteriorates in November as fresh restrictions bite
GDP decreased 2.6% in November (October: +0.6% mom). The figure marked the worst reading since April, and was driven by a decline in the services sector. Subsectors such as accommodation and food services, and recreation and culture, suffered particularly sharp declines amid a second lockdown. However, GDP fell at a markedly softer rate than market expectations, and much less than in Spring 2020. This is likely due to firms and consumers now being better adapted to social distancing requirements, and the fact that the second lockdown was not as stringent as the first.
On a rolling quarterly basis, GDP rose 4.1% in September–November, which was well below August–October’s 10.5% expansion.
Economic activity will have remained downbeat in December and even more so in early 2021, due to the imposition of a third, even stricter lockdown in January to curb surging Covid-19 cases. Momentum should build from Q2 though, as vaccines are rolled out.
Commenting on November’s reading and the implications for Q4 GDP were analysts at Goldman Sachs:
“The decline was significantly smaller than expected and points to an even lower sensitivity of the economy to the Covid restrictions than we had assumed, including in services. On the back of today’s upside surprise, we upgrade our Q4 GDP tracking estimate further from -1.2% to -0.5%”.
Regarding the economy in 2021, the analysts at Goldman Sachs stated:
“We […] still expect a double-dip pandemic recession in the UK, […] but we maintain our view that UK activity will pick up strongly from the spring, as services activity is very depressed relative to pre-Covid levels, the UK remains well-placed to benefit from the vaccine (despite a slow start to the roll-out) and fiscal policy stays supportive in 2021.”