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England's New Lockdown Threatens Economic Recovery, Stimulus Expected from Bank of England

Strategic Insights

— 2 min read

England's recent lockdown, announced by Prime Minister Boris Johnson, is likely to negatively impact the country's economic recovery, prompting economists to expect a fresh dip in activity and emergency stimulus from the Bank of England. The lockdown, which affects sectors such as hospitality, leisure, and non-essential retail, is expected to be less severe than the initial lockdown in the spring, but still cause significant economic damage.

Key Takeaways:

  • The new lockdown is expected to cause a GDP hit of at least 5% if it were only a fifth as bad as the spring lockdown, according to Julian Jessop, former chief economist at the Institute for Economic Affairs.
  • Kristalina Georgieva, the IMF's managing director, expects a smaller economic impact this time around due to the virus spread being slower and policymakers having taken extraordinary steps to support the economy.
  • The policy mistake of allowing the virus to spread further has probably cost both lives and livelihoods, said Tony Yates, former Birmingham University economics professor and BoE economist.
  • The Bank of England is expected to reinforce economic support with a further round of quantitative easing, adding up to £50bn to £150bn to its target stock of asset purchases.
  • The lockdown will severely damage corporate prospects, particularly for retailers, with the pre-Christmas season being especially punishing, according to Carolyn Fairbairn, outgoing CBI director-general.
  • Despite the virus rather than government restrictions being ultimately to blame for economic weakness, business groups warn that the lockdown will cause significant losses for many firms.
  • The economic outlook has worsened since the last MPC meeting, according to forecasts from the Bank of England and IMF.

Statistics:

  • UK gross domestic product plunged 25% between February and April when the nation went into its first lockdown.
  • Economists expect the second lockdown to cause a GDP drop of at least 5% if it were only a fifth as bad as the spring lockdown.
  • The IMF does not expect a second wave of the virus to lead to the "dramatic drop" in output seen in March.
  • The Bank of England is expected to add up to £50bn to £150bn to its target stock of asset purchases through quantitative easing.
  • The lockdown is expected to cost non-essential retailers £1.6bn a week in lost sales, according to Helen Dickinson, chief executive of the British Retail Consortium.

Sources:

  • Delphine Strauss and Chris Giles, "England's new lockdown is likely to snuff out economic recovery" (The Financial Times)
  • IMF (Oct 13)
  • IMF (Oct 29)
  • Bank of England, Monetary Policy Committee (Aug 6)

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