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Pubs and bars were closed again in the England’s November lockdown.
Pubs and bars were closed again in the England’s November lockdown. Photograph: Oli Scarff/AFP/Getty Images
Pubs and bars were closed again in the England’s November lockdown. Photograph: Oli Scarff/AFP/Getty Images

Why the GDP hit from UK lockdown 2.0 was smaller than expected

This article is more than 3 years old
Economics editor

More of the economy stayed open, Brexit talks boosted stockpiling and firms are developing some immunity to lockdowns

When the UK first went into lockdown last spring the impact on the economy was swift and profound. National output dropped by almost a fifth in April.

There was an echo of that decline in activity in the November figures for gross domestic product released by the Office for National Statistics but a relatively faint one. The 2.6% monthly contraction was bad – especially for consumer-facing businesses – but not nearly as bad as it might have been. Britain’s economy was 8.9% smaller in November than in the same month of 2019, but analysts were braced for an annual decline of more than 12%.

Why was the drop smaller than expected? For a start, more of the economy remained open in November than it did during the first lockdown. Factories kept turning out goods, construction work was allowed, children continued to go to school.

In addition, a couple of one-off factors supported activity. One was that the knife-edge state of trade negotiations between the UK and the EU encouraged firms to stockpile as insurance against a no-deal outcome. A second was that there was a delay between England’s lockdown being announced and the restrictions coming into force, which allowed people to do some early Christmas shopping or have a meal out.

But as Paul Dales, the UK economist at Capital Economics has noted, the UK has built up some immunity to lockdowns. Firms have found ways of doing business despite the restrictions, such as providing click-and-collect services. Consumers don’t stop spending when the shops are shut: they simply shop online.

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The current lockdown will cause more damage to the economy than that in November because the restrictions are tougher and will be in place for longer. As Rishi Sunak noted, the news will get worse before it gets better, but the vaccination programme means the likelihood is that restrictions will be gradually eased from next month onwards. The expectation in the financial markets is that a solid recovery will be under way by the spring.

In the meantime, there is the question of whether the UK will have a double-dip recession, defined as two consecutive quarters of falling output. GDP will almost certainly contract in the current quarter, but the better than feared figures for November suggest growth might just have remained positive in the fourth quarter of 2020.

According to Dales, GDP would need to fall by 1% in December for the economy to shrink in the fourth quarter as a whole. It is touch and go, but a double dip might just be avoided.

More on this story

More on this story

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  • UK recovery slows amid weakening consumer demand and staff shortages

  • Rishi Sunak weighs up moving budget to 2022 on back of Covid crisis

  • UK growth slows as computer chip shortage hits carmaking

  • Covid savings: Britain built up second highest level on record in early 2021

  • Sunak to use budget to start repairing UK's public finances

  • UK edges towards double-dip recession as GDP falls 2.6%

  • UK economy facing its 'darkest hour' due to lockdown, warns Bank governor

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