LONDON (Reuters) – Britain’s economic recovery almost ground to a halt in October as a surge in coronavirus cases hammered the hospitality sector, adding to the chances that the economy will shrink over the final three months of 2020.
Thursday’s official data showed the economy lost momentum as public authorities in much of the United Kingdom barred people from socialising in pubs and restaurants, ahead of a broader four-week partial lockdown across England in November.
Gross domestic product rose 0.4% in October after expanding 1.1% in September, the Office for National Statistics said, the weakest growth since output collapsed in April during the first lockdown.
A limited rollout of a COVID vaccine began this week in Britain, offering hope for a rebound in consumer spending in 2021. But many businesses will face new headwinds from trade restrictions with the European Union that come into force on Jan. 1 when post-Brexit transition arrangements end.
Prime Minister Boris Johnson and the EU’s chief executive, Ursula von der Leyen, have given themselves until Sunday to seal a new trade pact that would limit some of the damage, after failing to overcome persistent rifts at a meeting on Wednesday.
“The economy continued to grow in October, but at a snail’s pace. And with the COVID-19 restrictions likely to remain in place for some time, the economy is in for a difficult few months yet,” Ruth Gregory, economist at Capital Economics said.
Britain has Europe’s highest death toll from COVID-19, with more than 62,000 fatalities, and also suffered the biggest economic hit of any major economy after GDP shrank by an unprecedented 19.8% in the second quarter of this year.
Output in October was 7.9% lower than it was in February, before the pandemic struck Britain’s economy, and 8.2% weaker than in October 2019, the ONS said.
Government forecasters do not expect the economy to regain its pre-COVID size until the end of 2022 and the Organisation for Economic Co-operation and Development predicted Britain’s recovery would be weaker than anywhere bar Argentina.
Graphic: UK recovery in focus –
Although the economy picked up rapidly after the initial shock of the lockdown, it lost momentum as COVID cases started to rise again in September and accelerated in October.
Government restrictions that largely barred Britons from socialising with people they did not live with led to a 14.4% fall in output across the accommodation and restaurant sector.
Most economists think GDP fell outright in November, when the British government imposed a four-week partial lockdown in England, closing non-essential shops and hospitality venues, and similar measures were imposed elsewhere in the United Kingdom.
The decline is expected to be more limited than in the first lockdown, when restrictions were tighter and businesses had less time to adapt.
Economists at Morgan Stanley forecast a 3% fall in GDP for the fourth quarter, and said they expected the Bank of England to cut rates to zero from their current 0.1% – possibly as soon as next week, if Brexit trade talks collapsed.