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Work from home and online shopping - UK economy adapts to lockdowns

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LONDON (Reuters) - Britain’s economy is showing some signs of adapting to life under lockdown, according to data published on Friday.

Output shrank in November, when social-distancing restrictions were renewed, but by a lot less than when the coronavirus pandemic first hit last spring.

A third, tighter lockdown that began this month is likely to hurt the economy more in early 2021, but Friday’s figures show that companies are managing to operate despite the restrictions.

WHAT DID THE DATA SHOW?

Gross domestic product fell by 2.6% from October, the first contraction since April. Economists polled by Reuters had expected a decline of 5.7%. By comparison, GDP plunged by a monthly 18.8% in April.

WHAT EXPLAINS THE DIFFERENCE BETWEEN APRIL AND NOVEMBER?

The Office for National Statistics said many businesses had adjusted to COVID-19 restrictions, such as the widespread move to online shopping.

Manufacturing and construction grew as they continued to operate and schools also stayed open.

“Shifts to online retailing, and perhaps more efficient home-working, now appear to be giving the economy something of a cushion,” Philip Shaw, an economist with Investec, said.

HSBC economist Elizabeth Martins said that even in the hard-hit accommodation and food sector the level of activity was three times higher in November than it had been in April.

WHAT CAN WE EXPECT FROM BRITAIN’S NEW LOCKDOWN?

The United Kingdom went into a third, tighter set of lockdowns in January.

James Smith, an economist with ING, said the closure of schools - which will last until at least mid-February in England - would hit the education component of the GDP figures directly in early 2021 and would also reduce worker availability.

“Equally, with infections significantly higher across the country than they were in November, a higher share of workers will be isolating, and that in turn will be affecting business operations,” he said.

Retailer John Lewis has suspended click-and-collect services, something Scotland has banned for non-essential purchases.

While Britain’s economy might avoid a contraction in the final three months of 2020, it is likely to shrink by 2% to 3% in the first quarter of 2021, economists said.

WHAT’S THE LONGER-TERM OUTLOOK?

Britain’s economy must also contend with barriers to trade with the European Union, which came into effect on Jan. 1, as well as the spread of a more transmissible variant of the virus that began in England.

But the government hopes that its roll-out of coronavirus vaccines - which has outpaced the rest of Europe so far - will allow it to lift some restrictions from mid-February.

The Bank of England said in November it expected Britain’s GDP to regain is pre-pandemic size in the first quarter of 2022. A Reuters poll showed most economists expected recovery to take until at least early 2023.

But after Friday’s data, consultancy Capital Economics brought forward its forecast by three months to the first quarter of 2022, and it said late 2021 was plausible too.

Writing by William Schomberg

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