UK headed for double-dip recession after ‘strikingly downbeat’ end to 2020

06-Jan-2021 - Last updated on 06-Jan-2021 at 11:25 GMT

Burdensome restrictions: 'Though the vaccine rollout provides real optimism, a new national lockdown means that a significant double-dip recession in the first quarter of this year is looking increasingly likely,' the BCC's Suren Thiru explained

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New lockdown restrictions in tandem with stifled economic performance in final quarter of 2020 have left the UK on the brink of its first double-dip recession since 1975, according to the British Chambers of Commerce (BCC).

The UK economy slipped into its first technical recession since 2009 after suffering its biggest slump on record as a knock-on effect of Covid-19 lockdown measures in the first half of 2020.

The economy shrank by 20.4% versus the first three months of the year during April, May and June as a result of factors including a drop-off in household spending in shops and hospitality venues – which were ordered to close – and factory shutdowns yielding the slowest car production since 1954.

This followed a 2.2% drop in GDP between January and March of this year.

However, economic activity improved only slightly in the last three months of the year and remained well below pre-pandemic levels.

Though not enough to reverse the damage caused by the ongoing pandemic, the UK's economy saw record growth of 15.5% from July to September according to reports in November.

Now, the BCC’s quarterly economic survey has revealed that nearly half of businesses reported declining domestic sales, rising to more than three-quarters for hospitality and catering firms.

This compares to the two-thirds recorded in Q3 2020 but remains below the 94% recorded in the second quarter of the year.

Double-dip recession ‘increasingly likely’

England’s third national lockdown – which came into force in the early hours of 6 January and will be debated by MPs in the House of Commons – will only compound ongoing difficulties according to the BCC’s head of economics, Suren Thiru.

“These results indicate that economic activity was strikingly downbeat in the final quarter of 2020 as the re-introduction of tighter coronavirus restrictions weighed heavily on the key drivers of growth,” Thiru explained.

“Though the vaccine rollout provides real optimism, a new national lockdown means that a significant double-dip recession in the first quarter of this year is looking increasingly likely.”

Reports that the UK is in course for a double dip recession come after Stephen Owens, managing director – pubs and restaurants, at specialist property adviser Christie & Co, previously warned that there are currently “very different dynamics at play” compared to the last financial crisis.

“A much sharper decline and recovery may well be likely and much of the Government support has been aimed at ensuring businesses survive and that employees and consumers are protected as much as possible, all of which should be positive for the pub and hospitality sectors,” he told The MA in September.

“How much of the behavioural change we have seen is likely to remain permanent is probably as much to do with a successful vaccine being widely available as it is on direct economic factors, although the two are inextricably linked.

“However, history does provide a few clues. Pubs have been through many a downturn and doggedly survived, whilst restaurants rise and fall like the waves, but always come back for more."