The UK’s economic recovery was already showing signs of running out of steam prior to November’s national lockdown and will likely face further contraction for the final quarter of the year.

After suffering one of the worst downturns in history in Q1 and Q2 as the Covid-19 pandemic spread around the world, some had hoped for a quick bounce back that would see most if not all of the losses recovered. GDP data for October however shows the UK economy was already back to near-zero growth before the second lockdown undoubtedly caused further contraction.

Oct 2020 GDP

The Office for National Statistics confirmed that October saw GDP growth of just 0.4%. The UK at that time was in the earlier version of the tier system, with fewer restrictions and many businesses operating in some capacity. This left the UK economy still down by 8% on the start of the year; one of the worst performances of any major economy this year due to the reliance on the severely impacted service industry.

With the UK entering a second lockdown in November, and much tighter restrictions in December, it is now facing a contraction in Q4 of 2020 – joining Q1 and Q2 in one of the worst years for the UK economy.

The rollout of the Covid-19 vaccine is hoped to provide some further support for the economy moving into 2021. The current system however expects only those over 50 to be vaccinated by Easter next year and would leave a large portion of the population still at risk.

This risk will limit how far restrictions can be eased, and therefore limit how much further the UK economy can recover. Each month that restrictions continue will cause further damage to the key services industry that drives the UK economy. Hospitality and leisure venues like pubs have warned that without December’s lucrative trading period they face collapse, and each business to go in the next few months will not simply return as restrictions ease, leaving the UK with a much smaller economy.

A further risk to the UK economic recovery now rests with Brexit. So far, talks have been unsuccessful and are going right to the final hour, with Sunday’s deadline once again passing without a decision beyond ‘going the extra mile’.

Heading into 2021, the outlook for the UK economy looks to be continuing the trend of uncertainty. The easing of Covid-19 restrictions and a Brexit deal could see the recovery restart and gain some further momentum. If coronavirus continues to impact the service sector however, and last-ditch Brexit efforts fail to produce a deal, then the economy could fall back into recession.