UK 'set for double dip recession' after third lockdown, report suggests

6 January 2021, 00:00

The third English lockdown looks set to put the UK on course for a double-dip recession in the first quarter after a "strikingly downbeat" end to 2020, according to a report.

A survey by the British Chambers of Commerce (BCC) found nearly half of all firms (43%) saw sales fall in the final three months of 2020, rising to more than three-quarters (79%) in the hammered hospitality and catering sector.

This compares with 66% of hospitality and catering firms in the third quarter.

Its quarterly economic survey revealed the toll taken on consumer-facing firms from the November lockdown, with the latest restrictions adding to their misery.

Some 26% of the 6,203 firms polled for the survey reported rising sales, while 30% said there was no change.

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Suren Thiru, head of economics at the BCC, said: "These results indicate that economic activity was strikingly downbeat in the final quarter of 2020 as the reintroduction of tighter coronavirus restrictions weighed heavily on the key drivers of growth.

"The services sector endured a particularly difficult quarter, with consumer-facing businesses most severely exposed to the renewed restrictions.

"Though the vaccine rollout provides real optimism, a new national lockdown means that a significant double-dip recession in the first quarter of this year is looking increasingly likely," she added.

Manufacturers enjoyed an improvement in orders at the end of last year, with the balance of firms reporting increased domestic sales increasing to minus 9%, up from minus 15% in the third quarter.

The balance of firms reporting increased export sales increased to minus 8% from minus 26% in the previous three months.

But the BCC said this was largely down to a temporary boost from Brexit stockpiling ahead of the year-end deal deadline.

It also found that cash flow - a key indicator of business health - in the services sector remained at levels not seen since the financial crisis, despite a slight improvement in the fourth quarter.

The BCC said 43% of firms overall saw worsening cash flow, with just 21% reporting an improvement.

Its survey took place during the second lockdown in England and 94% of respondents were small businesses.

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It comes as businesses are to receive a one-off grant worth up to £9,000 as part of a £4.6 billion support package for the third national lockdown, Rishi Sunak has announced.

The chancellor promised more funding to firms in the retail, hospitality and leisure sectors this morning after Boris Johnson confirmed the country would be heading into another coronavirus lockdown on Monday.

As part of Mr Sunak's new relief package, there will also be a £594 million discretionary fund made available to local authorities and the devolved administrations to support other companies affected by the measures.

The funding is hoped to reach more than 600,000 businesses across the UK and will be worth more than £4 billion in total.

The Scottish Government will receive £375 million, the Welsh Government £227 million and the Northern Ireland Executive £127 million.

Mr Sunak said: "The new strain of the virus presents us all with a huge challenge - and whilst the vaccine is being rolled out, we have needed to tighten restrictions further.

"Throughout the pandemic, we’ve taken swift action to protect lives and livelihoods and today we’re announcing a further cash injection to support businesses and jobs until the Spring.

"This will help businesses to get through the months ahead – and crucially it will help sustain jobs, so workers can be ready to return when they are able to reopen."