Double-dip recession fears reignited as economy shrinks 2.6%

Double-dip recession fears reignited as economy shrinks 2.6%
Credit: Chris Ratcliffe/Bloomberg

Fears of a double-dip recession have resurfaced this morning as fresh lockdown restrictions saw the economy shrink 2.6 per cent in November.

Figures from the Office of National Statistics, published today (January 15), reported the decline, the first drop after six months of growth.

Gross domestic product fell back to 8.5 per cent below the levels seen in pre-pandemic February, the ONS said, while it was 8.9 per cent lower than in November 2019.

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Although a significant contraction, the decline in economic activity is less severe than the expected 5.7 per cent drop.

Richard Pearson, director at investment platform EQi, said the numbers have “reignited fears for the first double-dip recession since the mid-1970s” for the first quarter of 2021.

He added: “The economy was already nearly 5 per cent smaller at this point than at the beginning of 2020, so further contraction is calamitous.”

With lockdown measures expected to continue until at least March, GDP growth is expected to remain hamstrung over the next few months.

Jon Hudson, UK Equity fund manager at Premier Miton Investors, is more optimistic.

He said: “A 2.6 per cent decline was better than many economists feared, with many retailers suggesting a pull forward of Christmas shopping in anticipation of harsher restrictions. 

“With the UK leading the way on the vaccine rollout and Brexit concerns now in the rear view mirror, we can look forward to an economic recovery from Spring with growing confidence.”

In November, the services sector acted as the main drag on growth, falling by 3.4 per cent, with accommodation and food services the worst hit.

Driving growth upwards was the construction sector — which has not seen restrictions since the first lockdown —  and manufacturing.

Darren Morgan, ONS director for economic statistics, said: "The economy took a hit from restrictions put in place to contain the pandemic during November, with pubs and hairdressers seeing the biggest impact.

"However, many businesses adjusted to the new working conditions during the pandemic, such as widespread use of click and collect as well as the move online.”

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