New restrictions put recovery under threat

Linda J. Dodson

“The Government might have no choice but to resort to ordering businesses to close across the UK again,” says Samuel Tombs at Pantheon Macro.

He says shops were not shown to be “major incubators for the virus”, but notes cases only started to rise when pubs, restaurants and other consumer services reopened. “The most logical first step, therefore, would be to force these businesses to close again.”

Tombs estimates that another closure of consumer services businesses would push GDP to 15pc below pre-Covid levels as long as it lasted, compared to a 5pc shortfall without the restrictions.

Meanwhile, a national “circuit break” lockdown lasting two weeks would cut fourth quarter GDP by 3 percentage points, Wood warns.

The second wave is unlikely to be as economically damaging after lessons were learnt from the first. The factories and construction firms that closed last time are more likely to remain open under socially distanced guidelines while office-based businesses are better prepared for home working with many still yet to bring employees back.

However, the new restrictions could be just the first bump in the road to recovery during the colder months. The risk of stop-start restrictions that set back the economy numerous times could persuade firms to hold back investment and push other businesses over the edge.

The prime minister is keeping his most damaging restrictions in the back pocket for now – but it could be a long winter for the economy.

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