LONDON (Reuters) – Britain’s economy will contract this quarter and it will take at least two years for GDP to reach pre-COVID-19 levels, according to a Reuters poll which also found London would agree to a free trade deal with the European Union.
As a second wave of coronavirus swept through Europe, Britain, which has suffered the continent’s highest death toll from the pandemic, has reimposed severe restrictions on economic activity.
These lockdowns have particularly hurt its huge service industry, as hospitality establishments have been forced to close and stores to close.
After a tumultuous third quarter in which it grew 15.5%, the economy is expected to contract 2.7% this quarter, more than the 2.5% contraction traced last month, according to the poll. Next quarter, it will increase by 1.7%.
“The possibility of a rapid rebound in the first quarter is reduced,” said Stefan Koopman of Rabobank.
“Even when the vaccine is rolled out relatively quickly and successfully, restrictions will largely remain in place and businesses and households will have to adjust to the new trade relationship with the EU.”
After the historic 19.8% contraction in the second quarter, the economy is expected to shrink 11.2% this year and grow 5.3% in 2021, little change from last month, from November 26 to December 26 . 1 survey of about 60 economists found.
Last month, the Bank of England stepped up its stimulus measures to support the economy, increasing its bond buying program by an additional £ 150 billion. The bank rate is not expected to drop from its record low of 0.10% until at least 2024.
Despite all the stimuli, when asked how long it would take for GDP to reach pre-COVID-19 levels, 18 out of 26 respondents said at least two years. Seven said it in two years and one in one year.
“At the moment UK GDP growth forecasts are very uncertain and, given the massive fall in GDP in 2020 and the still unknown economic implications of the end of the Brexit transition period, the scars could be more important, ”Elizabeth Martins told HSBC.
(For a graph on the outlook for UK economic and monetary policy 🙂
Britain’s transition period from informal EU membership after leaving the bloc is due to end at the end of the year and the two sides have yet to agree on terms for their future trade relationship. .
The EU will launch emergency measures on Wednesday or Thursday if it is unable to reach an agreement with Britain by then, a senior European diplomat said. Michael Gove, who is overseeing Brexit talks for London, said on Tuesday talks were still stuck on fisheries, rules of governance and dispute settlement.
When asked if a ‘no deal’ scenario was any closer than anyone would admit, Gove told ITV: “It is certainly true that we may not get a negotiated outcome.”
But the poll found only a 35% median chance of no deal going through, down from 40% last month. As in all Reuters polls since the June 2016 referendum vote to leave the bloc, respondents said the most likely outcome was still some form of free trade agreement for goods.
“It is in the interests of both parties to reach an agreement,” said Peter Dixon of Commerzbank.
(For other articles from Reuters’ Global Economic Survey 🙂