U.K. Recession Risk Eases With Smaller-Than-Expected GDP Drop

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(Bloomberg) -- The U.K. economy shrank less than expected during the lockdown in November, making it possible the nation will avoid a double-dip recession.

The 2.6% contraction was 2 percentage points less severe than analysts had forecast. It means the economy will grow in the fourth quarter unless December’s reading shows a decline of 1%.

The figures suggest consumers adapted better to the second round of coronavirus restrictions than they did in the first half of 2020. A potentially larger hit is coming this month with schools and all non-essential shops closed, which has kept up pressure on the government and Bank of England to do more to protect people unable to work. Prime Minister Boris Johnson is pinning his hopes on a quick vaccine rollout to revive growth.

“It’s clear things will get harder before they get better and today’s figures highlight the scale of the challenge we face,” Chancellor of the Exchequer Rishi Sunak said in a statement. “But there are reasons to be hopeful. Our vaccine roll-out is well underway.”

While the decline was less than expected, a 2.6% drop is still very large by historical standards and deeper than anything seen during the financial crisis. Gross domestic product remains 8.5% below February, before the pandemic struck.

November’s fall, the first since April, was driven by the dominant services industry as non-essential shops and hospitality venues were ordered to close for a month.

The current lockdown, imposed after a surge in infections threatened to overwhelm hospitals, is due to last until mid-February at least. Crucially, it includes the closure of schools, which will hit the economy by reducing public-sector output and forcing some people to stop working in order to look after children at home.