13 Jan 2021
Posted in Business Fundamentals
Hopes of V-shaped recovery shattered for UK after new virus strain and lockdowns pushes the economy downhill, says GlobalData
The UK economy’s growth stalled in October after a surge in COVID-19 cases led to a crippling blow to the country’s economic recovery. Now, with Brexit to negatively affect trade in 2021 and the detection of a new strain of COVID-19 triggering various international travel bans and further lockdowns, optimism from positive vaccine news expected to be short lived and the country should expect a rocky road to recovery in 2021, according to GlobalData, a leading data and analytics company.
Shruti Upadhyay, Economic Research Analyst at GlobalData, comments: “On detection of the new COVID-19 strain, UK economic growth in December slowed to a snail’s pace. It is already doubtful that the country can achieve the previously expected 5.46% recovery in 2021, and, based on the latest developments, GlobalData has revised down its gross domestic product (GDP) forecast for the UK to -11.3% in December 2021.
“UK economic activity has dropped significantly since June 2020, particularly for the services sector with PMI falling to a five-month low of 47.6 in November as compared to 51.4 in October. December was barely an improvement at 49.9. While growth in manufacturing and construction in November should nullify the offset caused by the hard-hit services sector, prospects for the hospitality sector remain gloomy as the country moves to high alert amid the new COVID-19 strain. The economy’s K-shaped recovery is already visible with widening gaps between the rich and poor, shattering the glimmers of hope regarding V-shaped recovery.”
Upadhyay continues: “The second wave of COVID-19 has also seen the UK witness job losses. The active jobs index was at 67 on 29 December 2020, according to GlobalData Jobs Analytics Database. This is still much lower than pre-COVID-19 levels (104.4 on 1 March 2020), insinuating that the country is in it for the long haul and recovery will be slow.”
The diverse degree of growth between manufacturing, services and construction sectors is clearly evident. In December 2020, both the manufacturing & services PMI witnessed a growth with 57.3 & 49.9 index respectively. With tightening lockdown measures, accommodation, and food service activities caused growth of the services sector to drag, leading to moderate economic growth in December. The new disease strain is likely to trigger yet another sequential downturn in 2021.
Upadhyay concludes: “To dwindle the economy back to recovery, the UK Government must focus on mass testing until the COVID-19 vaccine is completely rolled out – alongside strict lockdown measures. Furthermore, targeted spending on the worst-affected sectors is absolutely imperative for building back consumer confidence.”