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Analysts' View: More debt, shrinking GDP - the impact of England's new lockdown

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

FILE PHOTO: A man runs at sunrise, with the City of London financial district in the background, Britain, September 22, 2020. REUTERS/John Sibley

Below are comments from analysts about the expected impact on the world’s sixth-biggest economy.

They say the hit will be heavy but less severe than the record contraction of nearly 20% in the spring.

Factors likely to soften the blow this time include: no closure of schools; manufacturing and construction firms asked to stay open; better preparedness by firms not asked to close; households more familiar with working from home.

DEUTSCHE BANK

- November GDP will probably plunge by a monthly 6-10%; 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 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.

- BoE likely to expand its asset purchases by 75 billion pounds, versus 50 billion pounds expected previously.

BERENBERG

- Fourth-quarter GDP, previously seen flat, will be 5.5% below its third-quarter level.

- The BoE is likely to announce 100 billion pounds of bond purchases and may launch additional credit support.

J.P. MORGAN

- Britain’s budget deficit this financial year will hit 20% of GDP - 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.

GOLDMAN SACHS

- The economy will shrink by 2.4% in the fourth quarter - rather than grow by 3.6% as the bank had previously expected - before expanding by just 0.4% in the first quarter of 2021.

MORGAN STANLEY

- Expects fourth-quarter GDP to shrink by 3%.

EY ITEM CLUB

- GDP could contract by at least 5% in the fourth quarter.

OXFORD ECONOMICS

- GDP to shrink by 3% in the fourth quarter. A factor which will help cushion the blow is the likely rush by companies to stockpile ahead of a possible Brexit shock at the start of 2021.

ING

- November GDP to fall 6-7%, and fourth quarter GDP to drop by 1.5%, assuming lockdown measures end in December

- The new lockdown “may well also add further political impetus for both sides to agree a UK-EU trade deal over the coming days.”

Writing by William Schomberg and David Milliken

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