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The Second Lockdown Appears to be Less Damaging to UK Economy

As the country battles to get through the second wave of coronavirus infections, new data suggests that the restrictions currently in place are proving to be less damaging to the economy than the spring lockdown.

The Early Signs

A range of different indicators show us that economic activity has been less badly affected than during the earlier lockdown. These include the number of people going to work and the volume of heavy goods traffic around the country.

If we examine the heavy goods traffic situation, we can see that as government figures have it, it is pretty much unchanged at the start of November when compared to the months preceding it. However, in spring this was something that dropped dramatically. In addition, the number of ships entering British ports rose in the first full week of November, indicating increased trade.

The first couple of weeks in November showed that the number of people travelling to work dropped far less sharply than it did in the first lockdown. With many businesses opting to pay collection agency fees to get by, being able to maintain something like normal working conditions is critical.

Consumer spending also fell at the start of November, although not as sharply as it did in March, with a 2.8% contraction in the week up to 8th November being the biggest drop since the first lockdown. This followed on from a plunge in consumer confidence figures, from -1 in September down to -10 at the start of the new restrictions.

Why Is This the Case?

There are a few main reasons why a second lockdown shouldn’t do as much harm to the British economy as the first one did. For a start, the economy is already smaller than it was earlier in 2020, so there is less scope for it to shrink further now. The decision to keep schools open has also helped parents to carry on working far easier than before.

Another factor is that companies are better prepared than they were in the spring, with plans already in place that let them carry on working even with restrictions. Finally, this lockdown has less severe restrictions than we saw earlier in the year, so the corresponding impact should be less.

Overall, the reaction to the new measures appear to have put the economy in a similar situation to where it was early in the summer, rather than in the spring. Some analysts are predicting a 3.5% drop in the GDP for the final quarter of 2020, compared to the devastating 19.8% contraction that we saw in the second quarter of the year.

Looking Ahead

The prospect of various new vaccines helping to end the restrictions sooner than expected has helped lead to an economic recovery in the last few days, but there are mixed messages coming out from the government about whether the current restrictions will in fact end on December 2.

The next few weeks will be crucial to the economy, as it seems that the restrictions will only be loosened if the number of new cases and fatalities falls.