Second lockdowns darken outlook for UK economy

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·2-min read
Britain's Chancellor of the Exchequer Rishi Sunak, left, during a visit to Peak Scientific, a Scottish manufacturer of gas generators for analytical laboratories, in Glasgow, Scotland, Friday Aug. 7, 2020. (Andy Buchanan/PA via AP)
Britain's chancellor Rishi Sunak. Photo: Andy Buchanan/PA via AP

Private sector forecasts for the UK economy have worsened in recent weeks with much of the country back in lockdown.

Monthly forecasts compiled by the Treasury and published on Wednesday show the average expectation for GDP growth this year is now -11%, down from an average forecast of -10.2% in October.

The figure is based on 17 predictions made by investment banks and think tanks between 2 November and 11 November. They include the likes of Goldman Sachs (GS), HSBC (HSBA.L), Barclays (BARC.L), and Oxford Economics.

The darker outlook means private sector expectations for UK GDP are now at their lowest point all year.

It comes amid strict second lockdowns across the UK to try and control the COVID-19 second wave. Wales began a two week “fire break” lockdown in mid-October and restrictions have been escalating across much of Scotland. England and Northern Ireland entered a month long shutdown on 5 November.

READ MORE: Bank of England's chief economist warns COVID will 'widen' generational gaps

US investment bank Jefferies said on Wednesday that its UK economic activity radar — which measures everything from transport usage and retail sales to web browsing — dropped by 7 points over the last week. Activity is now back to July levels and stands at just 57% of pre-pandemic levels.

Jefferies said the data was “consistent with a decline of over 3% in GDP” during the English lockdown, which was “in-line with our earlier thinking that further restrictions could result in UK GDP falling by 5% overall in November.” Economists at Dutch bank ING estimated earlier this month that the fall in GDP could be as much as 7%.

While the outlook for GDP is worsening, banks and think thanks have upgraded their forecasts when it comes to unemployment. The average forecast for the unemployment rate by the end of the year is now 6.1%, down from expectations of 7.3% in October. In recent weeks the chancellor has extended the furlough scheme until the end of March 2021, allowing employers to mothball staff rather than fire them.

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