Goldman Sachs and Citi have sharply cut its economic forecasts for the UK in the fourth quarter following news of a fresh national lockdown in England to curb the second wave of coronavirus infections.
In a client note, Goldman analysts said the US investment bank now expects UK GDP to shrink 2.4 per cent in the last three months of 2020 – a sharp reversal from its previous forecast of 3.6 per cent growth.
Citi analysts said they expected UK GDP to shrink by over four per cent during the quarter. “More protracted national lockdowns cannot be ruled out,” Citi said in a note.
Citi analysts Benjamin Nabarro and Christian Schulz said they expect output to remain over 11 to 13 per cent below the fourth quarter of 2019 until early 2021 “with local restrictions and an acute behavioral response weighing sharply (alongside Brexit)”
“The risk of more permanent effects is also growing,” the pair warned.
Goldman also slashed estimates for fourth-quarter GDP in the Euro area, and are now predicting a 2.3 per cent contraction for the period, compared to a previous forecast of 2.2 per cent growth.
Analysts led by Sven Jari Stehn said the near-term outlook for the region had “deteriorated sharply”, with cases surging across the continent and hospitalisations and deaths also rising rapidly.
“Looking ahead, we assume that the new restrictions will last for three months before they are gradually rolled back starting in February,” they wrote.
Prime Minister Boris Johnson’s announcement of a fresh lockdown in England brings the country in line with France and Germany, which imposed new nationwide restrictions last week.
Goldman analysts said they expected Italy and Spain to follow suit soon, adding that they expected the new European lockdown measures to last longer than currently planned.
“While the German, French and UK governments have so far only announced the restrictions for November and may intend to ease them ahead of Christmas, we are sceptical that this will be feasible in a sustainable manner over coming months in light of the severe virus situation,” they wrote.