Reasons to be bullish

This morning’s update from the Office for National Statistics has boosted optimism about the UK’s economic recovery. GDP fell 2.6 per cent in November, reversing the trend of six consecutive months of increases since April’s significant contraction. This takes GDP back down 8.5 per cent below February’s levels – wiping out the recovery gains made between roughly the end of July and November.

Not, on the surface, good news. But the case for optimism comes alongside the context of what was happening in November: England’s second lockdown and a host of fire-breaks and circuit-breaks throughout the UK. November’s significantly smaller contraction compared with the March shutdown has forecasters thinking that the economy may have become more resilient to lockdowns.

Capital Economics reports that the economy’s growing ‘immunity’ to restrictions makes the ‘economic hole’ smaller than anticipated, and suggests that ‘the economy may get back to its pre-crisis crisis level a bit sooner’ than previously predicted. As long as GDP didn’t fall more than 1 per cent last month, they say, the economy won’t have contracted overall in Q4 and we’ll avoid a double-dip recession. Oxford Economics has a similar conclusion, suggesting November’s figures can lead us to believe the economic effect of the ‘current lockdown will be much milder than the last spring’s version, even if – as we expect – some of the restrictions remain in place for the whole of Q1’.

Still, is it really the case that businesses have become more resilient to lockdowns, or is it that the nature of lockdowns has changed? Mobility data from November shows movement in England’s major cities never fell back to the record lows of spring. Lockdown legislation allowed for more activity, and many businesses took a different approach to the rules, deeming themselves ‘essential’ in the second lockdown, figuring out ways to stay open in a Covid-compliant manner.
There are also outstanding questions around how November’s restrictions will compare with this third lockdown – though still more liberal than the first, this one includes school closures and is set to last for six weeks at the very minimum.

All this suggests businesses have indeed adapted to rolling crackdowns – but this supposed resilience may have a lot to do with the fact that economic activity has not ever been as harshly restricted (by law or by choice) as it was in March.

Have businesses become more resilient to lockdown?
by Kate Andrews

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