Britain is headed for a sharper double-dip recession after Prime Minister Boris Johnson plunged the nation back into a lockdown with no clear end.
Economists said the action, announced Monday to prevent the health service from being overwhelmed by surging coronavirus infections, all but certainly means the UK economy will shrink in the first quarter. That will delay the recovery from the worst downturn in three centuries, which analysts say already was unlikely before 2023.
Closing schools means this hit will be worse than the restrictions imposed in November, according to Bloomberg Economics. It also puts pressure on Chancellor of the Exchequer Rishi Sunak to spend more supporting businesses and workers, an effort the Institute of Economic Affairs said the measures may cost the economy 18 billion pounds ($24 billion) a month — the equivalent of 18% of gross domestic product.
“This is bad,” Ludovic Subran, chief economist at Allianz SE said in a Bloomberg Television interview. “The U.K. is a service economy, so it’s all about shutting down services, and it’s bad because things like schools are a big part of GDP. Also because they play a role in how much parents are able to work.”
Sunak is due to announce a specific package. It may also prompt the Bank of England to provide more support, either through quickening the pace of its bond-purchase program, or taking more drastic measures such as cutting interest rates below zero for the first time.
“The financial support for businesses needs to be stepped up in line with the devastating restrictions being placed on them,” said Adam Marshall, director general of the British Chambers of Commerce. “Businesses must not be allowed to fail now, when the vaccine rollout provides light at the end of this long tunnel.”
What Bloomberg Economics Says:
“The double dip recession we had penciled in before Christmas is now almost certain to be deeper than we previously envisaged. Moving schools, universities and colleges to remote learning will amplify the shock.”
While the damage from the latest lockdown is not predicted to be as severe as the record 18.8% contraction in the second quarter of last year, it continues a torrid period for the UK and may boost the long-term scarring effects of the virus.
It also comes just days after the UK officially left the European Union, meaning firms having to cope with the twin disruptions of Covid and new regulations governing trade with the nation’s biggest partner.