Arbuthnot Banking : Second lockdown replaced by tough tiered restrictions as surveys point to weaker activity

Second lockdown replaced by tough tiered restrictions as surveys point to weaker activity

Date: 7^th December 2020

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:

• The second lockdown (England) ended on 2 December, to be replaced by a toughened up three-tier system, with most of the country placed in tiers 2 and 3.
• The Markit surveys for November suggested some overall retrenchment in activity, driven by the large services sector, as the lockdown undermined growth. However, manufacturing picked up, partly reflecting pre-end-transition period activity, as did construction.
• According to Bank data, October's consumer credit remained weak.
• The mortgage market, however, remained strong. Net mortgage borrowing remained positive and the number of mortgage approvals for house purchase increased further in October, to 97,500, the highest number of approvals since September 2007.
• EU nationals working in the UK fell by a record 364,000 (YOY) to 1.87mn in 2020Q3, whilst the fall in non-EU nationals fell by just 65,000 (YOY) to 1.29mn in 2020Q3, but this was the first annual decrease since 2017Q4.

Other findings:

• The OECD, in its December Economic Outlook, was more optimistic than in September, mitigating the world GDP fall to 4.2% in 2020 (from 4.5%). However, recovery would be uneven with China expected to easily outperform other major economies with 1.8% growth in 2020 and 8.0% growth in 2021. Somewhat against trend, the OECD downgraded the UK's performance, with this year's fall in GDP now expected to be 11.2% (10.1% in September), followed by partial recovery of only 4.2% in 2021.
• A comparison of fiscal events since mid-2015 confirms that the estimated costs of policies enumerated in the March 2020 Budget and the Spending Review 2020 are simply of a different order from their predecessors. The fiscal costs of Philip Hammond's policies were relatively modest, with the exception of the October 2018 Budget which was notably expansionary. George Osborne, meanwhile, maintained a tight grip, furthering fiscal tightening.

Brexit update:

• UK-EU negotiations on the future UK-EU relationship resumed on 6 December, after pausing on 4 December when 'significant divergencies' were cited.
• The Internal Market Bill has returned to the Commons, after being passed by the Lords, though with amendments.

Ruth Lea said 'The continuation of tight anti-pandemic restrictions will, of course, continue to bear down on the economy, especially the hospitality industry, frustrating economic recovery. The Markit surveys for November, unsurprisingly, suggested overall retrenchment and a fall in GDP for 2020Q4 now looks almost certain. The OECD's negative assessment of the UK economy, as one of the worst performing major international economies, looks all too plausible.'

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
[e-mail]
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
[e-mail]

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