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Are we looking at a double-dip recession?

17 January 2021

Official figures have shown UK GDP fell by 2.6% month-on-month in November, reigniting fears of a double-dip recession.

The latest figures from the Office for National Statistics ended six consecutive months of growth over the summer, including a rise of 0.6% in October. The services sector acted as the main drag on growth in November, falling by 3.4%. The sector is now 9.9% below the level recorded in February 2020.

The slump in November followed renewed restrictions across all four nations of the UK, with non-essential shops and the hospitality sector forced to close.

Derrick Dunne, CEO, Beaufort Investment, said that with the country expected to remain in lockdown throughout the first quarter of 2021, investors should be braced for further turbulence.

Dunne said: “While the vaccine rollout presents clear hope for the future, we must prepare for things to get worse before they get better. In an uncertain post-Brexit world, we have a rocky period ahead so anyone saving for the long-term should revisit their financial plan to ensure it’s still in line to meet their goals.”

While November figures were better than the 5.7% contraction that had been forecast by analysts, the ongoing lockdown means numbers are unlikely to rapidly bounce back, according to Richard Pearson, director, EQi.

Pearson said: “It was expected we would see a contraction in our monthly GDP. Although below the expected reduction of -5.7%, this is still quite a significant contraction reigniting fears for the first double-dip recession since the mid-1970s. The economy was already nearly 5% smaller at this point than at the beginning of 2020 so further contraction is calamitous.

“With the third lockdown in full swing, an uncertain end date and a cancelled Christmas season we can only imagine what future figures will look like. It’s clear the road to recovery for our economy will be fraught with challenges. Times of such economic strife drive home the importance of saving when you’re able to, to prepare for more rainy days ahead or to ensure your long-term goals are protected.”

Douglas Grant, director, Conister, said the November slump signalled bad news for many businesses, reflecting the dire situation that many now face.

Grant said: “We must now ensure that the financial security of those businesses that are sustainable can flourish in the future. Up until now, the BBLS and CBILS have performed a fundamental role in keeping many SMEs alive and acted as an important triage system to identify and support qualifying businesses needing credit. However, we believe that we have now passed this phase and we must recognise that many businesses will not survive this pandemic.”

Despite this, experts said the vaccine roll-out offers hope of economic recovery going forward, while investor sentiment has remained positive.

Ian Warwick, managing partner, Deepbridge Capital, commented: “Whilst economic contractions are unsustainable in the long term we do expect GDP to trend upwards as the vaccination programme is rolled out and restrictions are consequently eased. In the meantime however, it has been reassuring to witness that investor confidence remained positive during this period of tighter restrictions particularly in the early-stage venture capital sector.”

 

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