Second England lockdown caused a sharp decline in UK private sector activity

Suban Abdulla
·3 min read
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The composite measure, based on 595 respondents between 23 November and 14 December, was expected to show a decline as the second England lockdown fell in the survey period. Photo: Getty

UK private sector activity declined at a faster pace in the three months to December due to the second lockdown in England.

Activity fell to -21% in December from -16% in November, according to the Confederation of British Industry’s (CBI) monthly Growth Indicator.

The composite measure, based on 595 respondents between 23 November and 14 December shows that consumer services fell at a sharper pace to -59% from -42%, while distribution volumes were flat (-2% from +10%).

This was expected to happen as the second national lockdown in England fell within the survey field period.

Meanwhile, manufacturers (-6% from -6%) and business & professional services firms (-21% from -21%) reported the same pace of decline as November.

“The economy is having a bad end to a dreadful year. These figures show that private sector activity continues to decline, with the second lockdown in England having a particularly significant impact on our all-important services sector,” CBI principal economist, Charlotte Dendy, said.

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Looking ahead, CBI’s monthly Growth Indicators expects the pace of decline to remain broadly the same in the quarter ahead to -18%.

However, CBI’s forecast survey was carried out before the introduction of Tier 4 and other new restrictions announced in London, South East, South England and within the devolved nations. So the result could be different.

Dendy added: “But while public health must come first, businesses will now be wrestling with the increased restrictions into the new year.

“The government has helped by making clear that there will be no changes to the furlough scheme until at least Spring next year, while applications for Government-backed loans can also continue.

“That said, there is no doubt that a fresh look will be needed in January as to how the government can support UK businesses, given a renewed tightening in restrictions after an already tough year. All efforts must be made to accelerate the roll out of mass rapid testing and the vaccine so they can start to have a material impact.”

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A separate research showed that the UK’s economic recovery is facing a ‘double-dip’ downturn as coronavirus lockdowns batter firms.

Industry data from IHS Markit points to the sharpest decline in private sector output since May as economic restrictions left firms reeling after four months of expansion.

It said trade took the biggest hit for firms in services, which makes up four-fifths of the economy from cafes to shops to art galleries.

Meanwhile, private sector employment slid at the fastest rate in three months as redundancies grew, despite greater use of the extended furlough scheme.

A Lloyds Bank Business Barometer showed that business confidence in UK firms was at a nine-month high following the breakthrough in a coronavirus vaccine.

Overall business confidence increased by seventeen percentage points to -4% in December, the sharpest rise for more than four years — although it continues to sit in negative sentiment and remains well below the long-term average of 28%.

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