This morning’s update from the Office for National Statistics has boosted optimism about the prospect of the UK’s economic recovery. GDP fell 2.6 per cent in November last year, reversing the trend of six consecutive months of increases since April’s significant contraction. This takes GDP back down to 8.5 per cent below last February’s levels — wiping out the recovery gains made between roughly the end of July and November.
Not, on the surface, good news — but there is a case for optimism. Cast your mind back to the economic conditions in November: England’s second lockdown had just been announced and there was a host of fire-breakers and circuit-breaks throughout the UK. November’s significantly smaller contraction compared to the March shutdown has forecasters thinking that the economy may have become more resilient to lockdowns.
Capital Economics reports that the economy’s growing ‘immunity’ to restrictions makes the ‘economic hole’ smaller than anticipated, and suggests that ‘the economy may get back to its pre-crisis crisis level a bit sooner’ than previously predicted. As long as GDP didn’t fall more than 1 per cent last month, they say, the economy won’t have contracted overall in Q4 and we’ll avoid a double-dip recession. Oxford Economics has a similar takeaway, suggesting November’s figures can lead us to believe the ‘current lockdown will be much milder than the last spring’s version, even if — as we expect — some of the restrictions remain in place for the whole of Q1’.
Still, is it really the case that businesses have become more resilient to lockdowns, or is it that the nature of lockdowns has changed? Mobility data from November shows England’s major cities never returned to the record low levels of inactivity that we saw last spring. Lockdown legislation allowed for more activity last winter, and many bosses took a different approach to the rules, deeming their businesses ‘essential’ in the second lockdown while figuring out ways to stay open in a Covid-compliant way.
There are also outstanding questions around how November’s restrictions will compare to this third lockdown — though still more liberal than the first, this one includes school closures and is set to last for six weeks at the very minimum. All this suggests businesses have indeed adapted to rolling crackdowns — but this supposed resilience may have a lot to do with the fact that economic activity has not been as harshly restricted (by law or by choice) as it was in March.