Monday, 18 January 2021

UK shrinks 2.6% in November - apparently great news

Many economists, like Andrew Sentance for example, are declaring it a relative success that the UK economy did not shrink more during the 2nd Lockdown. 

Determined to see a silver lining to every cloud, they were expecting far worse and think this sets the UK up for a big re-bound in the near future. 

For me, some of the logic is poor, the second lockdown was not like the first, shops and schools were open and people were fed up with the restrictions when virus infections 'felt' low. If you fast forward to today, it is a lot more like the first lockdown. 

Also, with the lockdown here set to last until vaccine escape (if achievable) we have a whole Q1 of negative growth to deal with. 

The UK economy is going to be a lot smaller by the time the pandemic is over / under control. Yes there will be a big period of catch up with 10% growth for a couple of quarters, but lots of the damage is permanent along with a much higher debt to GDP ratio.

A few positives though, the share market and Sterling are already trading very low as compared to historical norms - there maybe upside in both for a while yet.

To me the big unknown for the year remains inflation - can QE keep inflation in its box forever? Maybe 2021 is when we find out. 

15 comments:

Unknown said...

How much inflation do you think is too much ?

Don Cox

Nessimmersion said...

To a large extent the pandemic is long over, however the panic-demic continues.
99% of the damage to the economy is done by the political reaction for whatever reason.
The damage will continue until the punishment beatings stop.
ONS stats- 2020 overall mortality 6th worst in last 20 years.

Nessimmersion said...

To a large extent the pandemic is long over, however the panic-demic continues.
99% of the damage to the economy is done by the political reaction for whatever reason.
The damage will continue until the punishment beatings stop.
ONS stats- 2020 overall mortality 6th worst in last 20 years.

Sobers said...

"For me, some of the logic is poor, the second lockdown was not like the first, shops and schools were open and people were fed up with the restrictions when virus infections 'felt' low. If you fast forward to today, it is a lot more like the first lockdown. "

Lockdown 3 is nothing like the Lockdown 1. Then just about all businesses closed, regardless of whether they had to or not. Unless it was vital everyone closed up and went home. Now just about every business is open, other than the ones who are closed by law, ie shops/pubs etc. The trades are all on full chat, the traffic on the roads is many multiples of what it was in L1. I'm a farmer and was out and about during L1 as I had to be, the country was like a ghost town. Around my parts I'd say economic activity has been very similar ever since L1 ended and people started to get back to work. Since then they've not stopped.

Old BE said...


“To a large extent the pandemic is long over“

Which hospitalisation stats are you looking at?

I think this lockdown will be less severe for the economy because we’re used to it now and have built what we can to work through it. First time around it took people a while to work out delivery systems etc. - now they can just ramp them back up again and so on.

This has been going on so long, I won’t predict how much hysteresis there will be. Loads of businesses won’t just pop back up again as if nothing has changed.

andrew said...


It will be interesting to see how many of us have been playing a part in the broken window fallacy without realising.

Thud said...

Most people I know are working one way or another, this lockdown is being much more ignored than the first.

Nessimmersion said...

Old BE.
ONS all cause mortality for 2020, about the only thing that cannot be massaged, 2020 overall was 6th worst in last 20 years., death rates in Dec Jan within 5 yearly average, nothing unusual.
NHS as usual was unprepared for winter, it came as a surprise that there was an increase in respiratory illnesses in Nov, they are doing PCR tests with a known false positive rate of 25% according to PHE, staff are taking tests, going off sick and care homes will not take patients with positive PCR. So a self imposed crisis due to inability to see the blinfdingly obvious.
I'm less optimistic that the hospitality sector can bounce back, delivery service is keeping a lot going hand to mouth but there is nothing left over to repay debt or reinvest. Aviation support is massively affected by lockdown, RR forecasts a massive cut in revenues.

DJK said...

If it's true as reported that the UK population shrunk by 1.3 million, then that alone would produce about a 2% fall in GDP.

E-K said...

An unknown for me is tax rises and the hit to pension funds.

Bill Quango MP said...

I’ve been doing annual stats today, for 2020.

Early March 2020 was an increase in trade. Due to the incoming worry about ‘That China Flu.’ Turnover up around 30%.
Come lockdown business falls. We were open the whole time. But as others have said, it wasn’t business as normal. And people panic bought and then stayed home permanently. Turnover fell 60%. Thats for an essential business that remained open.

However, the curve rose every month, until November and December which show large increases in turnover, up to 50%, until, panic over second lockdown and the eventual early end to Christmas.

Currently, figures for now look to be about the same as last January,. Maybe 15% down. It’s always hard to tell January. Need a quarter to really judge it.

So I would say, lockdown 2 is not comparable to lockdown one. It is more as others have said. It is a semi-lockdown we are already used to.
Without a vaccine, I don’t think it would be like this cases are rising very quickly,
Wife’s, In laws have the whole family infected., and everyone they met with at Xmas had it. Ten of them in all. Oldest two aren’t likely to make it. Both on ventilators.

I suspect without a vaccine on the way, people would be far more cautious than they are.

Anonymous said...

DJK - "If it's true as reported that the UK population shrunk by 1.3 million"

You'll have noticed the huge drop in house prices /sarc

I think these figures may have been done by the same people who predicted that only 13,000 Poles would move here after EU enlargement.

https://www.theguardian.com/uk/2004/feb/27/eu.immigration

British fears of an influx of immigrants from eastern European countries joining the EU in May were rubbished in Brussels yesterday as a new survey found that total migration into existing member states after the EU's biggest ever enlargement is likely to be about 1% over the next five years.

If correct, the figures mean there will be about 220,000 immigrants a year into all 15 current members. That suggests that the government's original "open-door" estimate of 5,000 to 13,000 a year coming to the UK is realistic and does not require limits on benefits, quotas or other restrictive measures.

"This study confirms the commission's view that fears of a huge wave of migration from the new member states will be proven to be unfounded," insisted Margot Wallstrom, commissioner for employment and social affairs.

Pat Cox, the Irish president of the European parliament, was blunter. "The biggest flood we've had to date is not of humans, but the flood of ink on tabloid red tops," he said.

lilith said...

This announcement by Matt Hancock is just about the most sinister announcement I have ever heard a politician make. It may have struck me harder because I've been ignoring the news. Something is rotten....

https://www.youtube.com/watch?v=1-nkxqR1Fqo&t=4s&ab_channel=GuardianNews

Anonymous said...

Nessimmersion - "ONS all cause mortality for 2020, about the only thing that cannot be massaged, 2020 overall was 6th worst in last 20 years., death rates in Dec Jan within 5 yearly average, nothing unusual."

That's not what I see for England and Wales.

https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/adhocs/12735annualdeathsandmortalityrates1938to2020provisional

Raw number of deaths highest since 1918 (flu)
Deaths/100,000 highest since 2003

Ah, I see, you're looking at "Age-standardised mortality rate" which was indeed higher in 2010 and for every single previous year. It seems to show improvements in medical care long-term. It was twice the rate in 1958, admittedly a bad flu year.

Graeme said...

I think if you were to include house prices, the CPI announced today should be close to 7%