“The November lockdown of England will bring the already fragile economic recovery to a sharp halt. The Office of Budget Responsibility expects the UK’s economic output to fall by 11.3% over the course of the year, before growing by 5.5% in 2021, and finally recovering to pre-COVID levels by the end of 2022.
Consumers’ financial wellbeing continues to defy the pandemic, however. People are more likely to feel worse off than better off compared to last year, but not enough to cause a real harm for most households. The furlough scheme has played a huge role in this, and its success has driven down expectations for unemployment. However, significant challenges remain in the months ahead, compounded by the end of the Brexit transition period at the end of the year.”
– Rich Shepherd, Associate Director - Financial Services

The outlook for 2021 has worsened…

In November, the OBR (Office for Budget Responsibility) published its latest Economic and Fiscal Outlook. The good news is that the total drop in GDP in 2020 is expected to be less severe than previous projections, despite the second wave of infections and subsequent lockdowns. The OBR’s new central scenario sees output fall by 11.3% this year, compared to 12.4% in the July Fiscal Responsibility Report.

However, looking ahead, the OBR has stated that COVID-19 is now expected to produce long-term scarring on the economy, with projected growth in 2021 having been scaled back in the latest forecast. The OBR now predicts growth of 5.5% in 2021, followed by faster growth in 2022 (6.6%), compared to July’s central scenario forecast of 8.7% growth in 2021 and 4.5% in 2022. GDP isn’t expected to recover to pre-COVID levels until the fourth quarter of 2022.

… but the forecast for unemployment has eased

Perhaps the most notable difference between the OBR’s July and November forecasts is a dampening of unemployment expectations. This is largely due to the success of the CJRS (Coronavirus Job Retention Scheme) and its extension through to the end of March 2021. Whereas the OBR had previously expected unemployment to peak at 11.9% in Q4 2020 and to average 10.1% in 2021, the November central scenario predicts a high of 7.5% in Q2 2021 and an average rate of 6.8% next year.

The easing of unemployment fears and the extension of the CJRS have boosted consumer confidence, which reached a post-COVID high in November. It is, though, only a short-term solution, and the inevitable increase in unemployment as the scheme is withdrawn will hit consumer confidence and spending power. The jobs market is clearly much more vulnerable than it was before the outbreak, and joblessness is rising despite the CJRS. At the time of writing, Arcadia Group has entered administration and Debenhams - already in administration - has thus far failed to find a buyer. The failure of just these two high street groups puts over 20,000 retail roles at risk.

Consumers still feel pretty good, but spending remains down

Confidence aside, the more immediate effect of the CJRS has been to maintain household finances that would have been under much greater strain had workers been made redundant rather than furloughed. Consumers are slightly more likely to feel worse off than better off compared to a year ago, but their overall feeling of financial wellbeing has still held up relatively well.

Heading into the Christmas period, spending - both actual and planned - remains low. Consumers reported higher volumes of spending on dining out of the home, pushed up by the Eat Out to Help Out scheme in August, but this is still much lower than pre-COVID levels. Fashion retail continues to suffer from consumers having fewer opportunities to attend events, while hygiene concerns and COVID-19 restrictions will hold back leisure and travel markets for a while longer yet.

The end of the Brexit transition period will be met with pessimism

The end of the year will see the result of the 2016 EU referendum finally implemented in full, as the UK will leave the EU Single Market and Customs Union. At the time of writing (1 December 2020), a UK-EU trade deal is yet to be agreed and it seems almost certain that British firms engaged in international trade will face significant disruption for at least a short period from the start of January.

Consumer sentiment regarding the impact of Brexit on the British economy and personal finances has improved since the summer, but remains overwhelmingly negative. As has been the case throughout Mintel’s 29 waves of Brexit research, consumers are most concerned about the impacts on the cost of living, unemployment and economic growth.

Key economic indicators

Figure 1: Key economic indicators, November 2020
Period Value
Annual GDP growth Year to Q3 2020 -9.6%
Unemployment rate July-September 2020 4.8%
CPIH October 2020 0.9%
Annual change in average weekly earnings (excluding bonuses) Year to July-September 2020 +1.3%
Bank of England Base Rate November 0.10%
Annual change in house prices (Land Registry) Year to September 2020 +4.7%
Value of retail sales (excluding fuel, non-seasonally adjusted) Year to October 2020 +8.4%
Source: Office for National Statistics, Bank of England, Land Registry
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