Analysts’ View: More debt, shrinking GDP – the impact of England’s new lockdown

FAN Editor
An empty bus is driven through the quiet streets outside the Bank of England in the early hours in London
FILE PHOTO: An empty bus is driven through the quiet streets outside the Bank of England in the early hours, as the city is deserted at night like never before, while the coronavirus disease (COVID-19) lockdown continues, in London, Britain April 22, 2020. REUTERS/Dylan Martinez

November 2, 2020

LONDON (Reuters) – British Prime Minister Boris Johnson has ordered England back into lockdown to slow the spread of COVID-19, a move that will weigh on the country’s budget deficit and its 2 trillion-pound ($2.6 trillion) debt mountain, and probably cause the economy to shrink again.

Below are comments from analysts about the expected impact of the lockdown on the economy.

JP MORGAN

– Britain’s budget deficit will hit 20% of gross domestic product – twice its peak after the global financial crisis – with the extra stimulus costing over 20 billion pounds.

– GDP contracts by 1.5% in the fourth quarter, a much smaller quarterly hit than a crash of nearly 20% in the April-June period which covered the first lockdown, largely because Britain’s economy is still 9% smaller than before the pandemic

– Also softening the hit this time: no closure of schools, manufacturing and construction firms asked to stay open, better preparedness by firms not asked to close, and households better positioned to use online services and work from home.

DEUTSCHE BANK

– November GDP will probably plunge by a monthly 6% to 10%; fourth-quarter GDP is likely to drop by between 2.5% and 3.5%.

– The Bank of England is now likely to increase its bond-buying programme by 100 billion pounds at the end of its November meeting on Thursday. Deutsche Bank had previously expected an increase of 60 billion pounds.

CITI

– GDP will shrink by over 4% in the fourth quarter, or by more if there are longer lockdowns.

– Borrowing in the current financial year is likely to hit 411 billion pounds, or 20.8% of GDP.

BERENBERG

– November GDP will slump to 12% lower than its level in September. Fourth-quarter GDP will be 5.5% below its third quarter level, compared with a previous forecast of an unchanged outcome.

– The Bank of England is likely to announce 100 billion pounds of bond purchases on Thursday and may launch additional credit support

($1 = 0.7762 pounds)

(Writing by William Schomberg and David Milliken)

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