UK Economy to Contract in Q4 2020, Rebound Into Growth in 2021

UK Economy to Contract in Q4 2020, Rebound Into Growth in 2021

Posted Tuesday, November 24, 2020 by
Arslan Butt • 1 min read

Recent analysis by PwC reveals that the UK economy could witness a contraction in Q4 2020 by anywhere between 2.1% and 3.3%, while the overall GDP for 2020 could come in anywhere between -11.2% and -11.4%. UK’s economy could rebound into growth next year, however, with 2021 GDP expected to be in the range of 3.4%-6%, depending on the successful rollout of a vaccine against COVID-19 and a post-Brexit trade deal with the EU.

However, economic output across the UK would only return to pre-pandemic levels by 2022, and any further extension of lockdown measures could delay this to as late as end of 2023 as well. The latest PMI readings out of the UK also indicate that its economy is likely to experience a double-dip recession in the wake of the latest round of lockdowns due to the second wave of the pandemic.

In November, UK’s private sector experienced the sharpest contraction since May after the government reimposed lockdowns and restrictions to contain the second wave of infections across the country. After four months of expansion, business activity fell back into contraction especially due to the services sector as businesses across leisure and hospitality industries shut down temporarily.

Chief economist at PwC, Jonathan Gillham, observes, “After a double dip, the economy should begin to rev up at the start of next year. While we initially anticipated that recovery would resemble a swoosh, we now envisage it being more of a W shape – albeit with a much smaller second drop. Although we expect a boost to economic activity as vaccines progress and confidence builds in the first half of 2021, the longer term outlook will very much depend on the nature and duration of further restriction measures and the outcomes of the UK-EU trade negotiation, which could weigh on growth.”

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