Harold Wilson was prime minister and Margaret Thatcher the newly elected leader of the opposition. Lord’s hosted the first cricket world cup final, David Bowie released Young Americans and inflation reached a post-war high of more than 25%. That was Britain in 1975, the last time the economy endured a double-dip recession.
Until now, in all likelihood. When the Office for National Statistics releases growth figures for November next Friday the data is expected to show UK on course to contract in the final three months of 2020. An economy that was already losing momentum in the early autumn was further hampered by the four-week lockdown in England that ended in early December.
Lockdown 3 – which came into force earlier this week – guarantees that the economy will beweaker still in the first three months of 2021, even if the government’s vaccination programme goes as planned and restrictions can be gradually eased from mid-February onwards.
Two successive quarters of falling gross domestic product (GDP) are needed to qualify for a recession and a double-dip involves two recessions, separated by a small gap: something now highly probable, but not inevitable.
Torsten Bell, the director of the Resolution Foundation, says it is still “technically possible that the fourth quarter of 2020 wasn’t a fall, but it probably was”.
On an annual basis, 2020 will record the biggest drop in national output since 1709. There was, of course, no ONS during the “Great Frost” of that year, but such evidence as there is suggests the 15% drop in output was a short, sharp shock. It might not technically have even been a recession by modern standards, although it would have felt like one.
Today measuring the economy is a lot more sophisticated. The ONS reports monthly GDP figures with a short lag, and during the pandemic has been providing more timely snapshots with the help of traffic usage, retail footfall and Google searches.
When the crisis began a little less than a year ago, the assumption was that the UK would go backwards in the first half of 2020 but then recover much of the lost ground by the year’s end. But the bounce in the third quarter of last year proved fleeting and the economy will end 2020 more than 10% smaller than it was in the final months of 2019.
The closest the UK has been to a double-dip recession since the mid-1970s was in the early 2010s when the ONS initially reported a second two-quarter fall in output after the arrival in power of the Conservative-Liberal Democrat coalition government but found later that the economy had performed better than initially feared.
“You do have to be careful about data revisions,” says Rory MacQueen, principal economist at the National Institute for Economic and Social Research (NIESR), a leading thinktank. “There was the double-dip recession that never was under the coalition government, which was eventually revised away.
“Having said that, our most recent forecast is for negative growth in the fourth quarter of 2020 and it’s hard to imagine the first quarter of 2021 being positive.” NIESR is currently pencilling in a 1.5% drop in output in the final three months of last year – a big quarterly drop by pre-pandemic standards.
Analysts agree, though, that the state of the UK differs from previous recessions. There has been no oil shock as there was in late 1973, no three-day week as there was in early 1974, no monetarist experiment with high interest rates and an over-valued pound as there was in the early 1980s, no housing market crash as there was in the early 1990s, no near-death experience for the banks as there was in the financial crisis of just over a decade ago.
“This is not really a recession in the normal sense of the word,” says Martin Beck of the consultancy firm Oxford Economics. “It’s artificial hibernation by diktat of the government.”
Beck thinks that once the constraints are removed, the economy will recover fast. He expects output to fall by 1% in the fourth quarter of 2020 followed by a further 4.5% contraction in the current three-month period. After that, he is pencilling in growth of 9% in the second quarter as the sectors closed due to social distancing rules such as non-essential retail, hospitality and leisure – reopen for business.
This, though, assumes there are no hitches in the vaccination programme and that new strains of the coronavirus don’t emerge over the coming weeks. The projected timing of the recovery has already been pushed back from the first to the second quarter of 2021.
While a setback, the second leg of the 2020-21 double-dip recession will not be as severe as the first. Manufacturing and construction have stayed open this time, firms have adapted their business models in response to social distancing, and consumers have found they can spend money as easily online as they can in shops. But as Beck points out, the economy is also starting from a much lower base and with companies already closed. “You can’t shut a nightclub twice,” he says.
All your Asset management needs with Global Asset Management Korea Magazine