Deutsche Bank says UK double-dip recession ‘inevitable’ on Brexit, lockdown woes

Analysts at Deutsche Bank have said that the UK looks destined for a double-dip recession after Prime Minister Boris Johnson plunged the country into lockdown.

The tough new lockdown in combination with trade disruption from Brexit means “a double-dip recession now looks inevitable,” said the 5 January client note from Deutsche Bank economist Sanjay Raja.

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Deutsche said it thought GDP fell 1% from the third quarter to the fourth quarter of 2020 after coronavirus restrictions were tightened in the autumn.

“We now expect the UK to formally enter a double dip recession to start the year,” the note said.

The bank forecast a fall in GDP quarter-on-quarter of 1.4% in the first quarter of 2021.

However, the note predicted a bounce back following an easing of restrictions later in 2021 after a wider roll-out of Covid-19 vaccines.

“This should leave 2021 UK GDP growth at 4.5%, after dropping by 10.3% in 2020,” the note said.

The bank identified three factors that would weigh on GDP: Brexit, an overhang from Brexit stockpiling and a third tough lockdown which in England is not set to be lifted until at least March.

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“Our recent Brexit impact assessment showed that non-tariff barriers, akin to a thin Canada-
style deal, would shave off 0.6pp from UK GDP,” the note said.

Deutsche said it expected an overhang from Brexit stockpiling ahead of the 31 January 2020 transition deadline, alongside net acquisitions, to weigh on GDP by over 2% in the first quarter.

The bank said that the tighter lockdown restrictions imposed by Johnson’s government on 4 January would lead to a GDP dip this month.

Taking all three factors into account, the bank said it expected a 1.4% quarter-on-quarter fall in GDP in the first quarter of 2021, leading to the first double-dip recession for the UK since the 1970s.

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