Industry warns worse is to come as UK nears double-dip recession

Asset managers warn that a double-dip recession is "increasingly" on the cards for Britain and that the road to recovery "will be fraught with challenges" as the pandemic continues to hit the economy.

The UK economy shrank by 2.6% in November as it took a hit from restrictions put in place to contain the Covid-19 pandemic and is now on the path of a double-dip recession.

Richard Pearson, director at investment platform EQi, said the numbers have "reignited fears for the first double-dip recession since the mid-1970s" for the first quarter of 2021.

He added: "The economy was already nearly 5% smaller at this point than at the beginning of 2020, so further contraction is calamitous."

For Pearson, "it's clear the road to recovery for our economy will be fraught with challenges."

Robert Alster, CIO at Close Brothers Asset Management said: "General consensus is that the UK economy is going to get worse before it gets better, which is reflected in November's GDP plummet after several months of tentative growth. The lockdown at the end of 2020 almost feels like old news as we undergo our third round of shutdown.

"A double dip recession is increasingly on the cards for Britain. Virus cases continue to climb, leaving policy-makers grappling with establishing an effective health policy whilst providing enough financial support for both individuals and businesses.

"With no set end-date for the current restrictions, investors will be hoping that the rapid vaccine roll out programme across the nation will get the UK economy up and running again, meaning there is light at the end of the tunnel."

Derrick Dunne, CEO at Beaufort Investment, warned that "with the country expected to be in lockdown throughout the first quarter, it could be nigh on impossible to avoid another recession".

He said: "While the vaccine rollout presents clear hope for the future, we must prepare for things to get worse before they get better. In an uncertain post-Brexit world, we have a rocky period ahead, so anyone saving for the long-term should revisit their financial plan to ensure it's still in line to meet their goals."

With lockdown measures expected to continue until at least March, GDP growth is expected to remain under pressure over the next few months.

Douglas Grant, director of Conister, paints a bleak future as the pandemic is forcing closures. He said: "We must recognise that many businesses will not survive this pandemic, particularly those with an unsustainable debt burden. It is imperative for the future that we now focus on identifying and protecting our most resilient business sectors. 

Services fell 3.4%, while manufacturing and construction grew 0.7% and 1.9% respectively. 

Ian Warwick, managing partner at Deepbridge Capital, said that "while economic contractions are unsustainable in the long term, we do expect GDP to trend upwards as the vaccination programme is rolled out and restrictions are consequently eased.

"In the meantime however, it has been reassuring to witness that investor confidence remained positive during this period of tighter restrictions, particularly in the early-stage venture capital sector, with interest in Deepbridge's technology and life sciences companies seeing record inflows for Q4."

According to the latest economic data, pubs and hairdressers suffered the biggest impact during the second English lockdown in November, as the hospitality sector was forced to close or operate as takeaway-only. 

Olivier Konzeoue, FX Sales Trader at Saxo Markets, said that "as a whole, it's difficult for markets to paint a clear picture given the context of lockdown measures clamping down the UK economy as well as added customs frictions and a cloud of uncertainty surrounding financial services post-Brexit.

"A double-dip recession is indeed looming in the longer term but the data released today doesn't warrant a hit of the panic button and GBP seems to be holding its ground, yet again."

Jon Hudson, UK Equity fund manager at Premier Miton Investors, is also optimistic.

He said: "A 2.6% decline was better than many economists feared, with many retailers suggesting a pull forward of Christmas shopping in anticipation of harsher restrictions. 

"With the UK leading the way on the vaccine rollout and Brexit concerns now in the rear view mirror, we can look forward to an economic recovery from Spring with growing confidence."

This article was first published by our sister title Investment Week

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