Economic Perspectives –

A double dip recession looms, as lockdown restricts economic activity

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


18th January 2021


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:

  • GDP fell by 2.6% (MOM) in November, and was 8.5% lower than in pre-pandemic February, as the second lockdown curbed activity.
  • The services sector was the main drag on activity, falling 3.4% (MOM) in November, production was little changed (down 0.1%, but manufacturing was 0.7% higher) and construction was 1.9% firmer.
  • Industries have performed very differently since February, with the consumer-facing sectors especially adversely affected by Covid-controlling measures. The output of the accommodation and food industry was nearly 64% lower in November than in February, whilst transport and storage had fallen by over 21%, arts and recreation by nearly 37% and “other services” (including hairdressing) by over 31%. By contrast, production was just 4.7% down (within which manufacturing was 4.9% lower), whilst construction was modestly higher (0.6%).
  • As an illustrative scenario, GDP could fall back 0.25% (QOQ) in 2020Q4 and by around 4% (QOQ) in 2021Q1. These projections suggest a return to recession, even on the strict definition of two quarters of falling output, though note the estimate for 2020Q4’s slippage is quite marginal.
  • The ONS’s latest Business Impact of Coronavirus Survey (BICS) suggested a significant fall in the percentage of businesses “currently trading” in late December/early January. Moreover, 14.7% of total respondents had “no or low confidence” that they would survive, and this rose to 33.8% for accommodation and food activities and 31.8% for “other services”. The BICS also reported a pick-up in the proportion of businesses’ workforce on furlough leave in the second half of December. 
  • The trade balance (goods and services) swung into deficit in the three months to November, as imports recovered. There was evidence that the higher imports partly reflected potential stockpiling in preparation for the end of the EU exit transition period (31 December 2020).  

International update:

  • Oil prices have firmed recently following Saudi Arabia’s decision to cut oil production on 5 January.
  • US President-elect Joe Biden announced a $1.9tn stimulus package on 14 January.

Ruth Lea said “Even though the fall in November’s GDP was less-than-expected it, nevertheless, presaged a double dip recession. In a very general sense recession can be defined as “a period of temporary economic decline”, irrespective of the number of quarters involved, implying not just falling output but a deteriorating labour market. Given the expected weakening labour market for 2020Q4-2021Q1, the next few months will not only see recession, but feel like one. Interestingly both the Chancellor and the Bank Governor issued warnings last week. The Chancellor said the economy “would get worse before it gets better”, whilst the Governor warned the UK economy was facing its “darkest hour” due to lockdown.”




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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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