Covid-19 lockdown to send Britain hurtling into first double dip recession since the 1970s

Restrictions combined with Brexit will drag on 2021 growth

Double dip recessions were as common as Chopper bikes in the 1970s

Getty Images

5 January 2021

Britain is poised for its first double dip recession since the 1970s as employers reel from the impact of today’s new Covid lockdown, economists predicted.

Analysts at Deutsche Bank said the new restrictions would stymie companies’ activity growth in the first quarter of the year, with a sharp fall in January caused in part by universities delaying students’ return from holidays, hitting the services sector.

GDP for the quarter will be around 10% below its pre-virus levels of output, the bank said, with a 1.4% contraction, marking a double dip recession.

A recession is defined as two consecutive quarters of decline. Numerous double dips occurred in the 1970s, the last being in 1979, the year Margaret Thatcher became Prime Minister.

1970s was a decade of hopping in and out of economic decline

Economist Sanjay Raja at Deutsche said Brexit would be another factor pushing the quarter into decline as British exporters faced more overheads when trading with the EU.

Concerns about Brexit costs and disruption has left manufacturers’ customers building up bigger stockpiles than previously thought, which would impact on growth of production as companies use up that inventory.

However, Raja said he thought the vaccines would allow the government to ease lockdown restrictions after the first quarter, leaving the UK ending the year with GDP growth of 4.5% after 2020’s 10.3% crash.

Economists broadly agree that the combination of the old Tier 4 and new lockdown could cost the UK economy £60 billion. The latest restrictions could cost the economy about £15 billion by the spring, the warned.

A recovery in the summer is still possible, experts insist.

Simon French at Panmure Gordon said: “The essential challenge, superseding all others for Rishi Sunak, is to help preserve viable jobs and businesses.

“In doing so this gives the best chance for the UK to recover rapidly in the second half of the year. ”This is no easy task. No-one knows for certain which behaviours will shift forever post-lockdown. But the onus is on the Treasury to err on the side of generosity rather than penny pinching.”

Sunak today announced a package of support measures for shuttered businesses including top-up payments of £9000 for bigger premises but many businesses were left disappointed that he did not extend the relief on business rates and VAT that comes to an end in March.