GDP Forecast to Contract by 2.2 per cent in Fourth Quarter

GDP forecast to contract by 2.2 per cent in Q4

Main points

• Latest ONS estimates published this morning show that the UK economy grew by15 ½ per cent in the third quarter of 2020, as the economy recovered from the first phase of the Covid-19 pandemic and resultant public health measures. This is largely in line with what we expected last month and with our recent forecast in our November Review.
• Monthly estimates suggest that growth in September itself was 1.1 per cent, meaning that GDP at the end of the quarter was still 8.2 per cent below its pre-pandemic February level.
• Our outlook for the fourth quarter is for 2.2 per cent decline in growth. We expect growth to be 0.3 per cent in October. The second lockdown is expected to bring a monthly fall of about 12 per cent in November in line with our previous estimates on the impact of the November lockdown.   
• Our forecasts assume a return to October levels of activity in December: in other words, we expect a rapid rebound following the end of the second lockdown. Accordingly, our forecast for 2020 stand at –11.3 percent.
• There are downside risks if the lockdown is extended or does not succeed in bringing down infection rates, while upside risks would come from a smaller than anticipated fall in November as households switch to online consumption ahead of the holiday season.

“Today’s ONS data suggest that the recovery from the first phase of the pandemic was already slowing by the end of the third quarter, with output remaining 8.2 per cent below pre-pandemic levels in September. Growth in the fourth quarter will be much slower than in the third quarter and is likely to turn negative, due to weaker growth in October and a second lockdown from November. Our expectations for the fourth quarter and beyond will depend on the stringency and duration of ongoing lockdowns; local and national .”

Dr Kemar Whyte, Senior Economist - Macroeconomic Modelling and Forecasting

“We expect the second lockdown to bring a large monthly contraction in November to be followed by a quick rebound in December provided that the lockdown succeeds in getting infection rates under control without the need for a further extension. The UK economy is likely to contract by 11.5 per cent in 2020.”

Dr Hande Küçük, Deputy Director - Macroeconomic Modelling and Forecasting

Please find the full analysis in the document attached