U.K. Covid Restriction Impact Less Than 1% GDP, JPMorgan Says

(Bloomberg) -- Current U.K. restrictions to slow the spread of Covid-19 will have only a small direct effect on an economy still reeling from a nationwide lockdown earlier in the year, according to JPMorgan Chase.

The hit to GDP will be less than 1%, economist Allan Monks wrote in an e-mailed note Thursday. Longer lockdowns of eight weeks affecting more regions however could shrink growth by as much as 2.6%. That’s a risk as the British government comes under increasing pressure to follow France and Germany in ramping up curbs.

The indirect effects from the virus, such as people voluntarily staying away from shops and restaurants, could lead to a much bigger hit, Monks said.

Given the resurgence in the virus, Chancellor of the Exchequer Rishi Sunak needs to keep the spending taps open and maintain job and company aid programs until the crisis subsides, the International Monetary Fund said Thursday.

So far only Wales and Northern Ireland have implemented so-called “circuit breaker” lockdowns, although swaths of the country have had restrictions tightened in recent weeks.

The U.K. should even consider an additional fiscal push to boost public investment and improve the U.K.’s safety net, IMF Managing Director Kristalina Georgieva said.

The comments come a week after Sunak announced a significant increase in U.K. support for businesses and workers. While it’s essential for governments to begin to reduce public debt ratios, consolidation should only happen once “the private sector has durably picked up steam,” Georgieva said.

For now, the outlook is for a “muted recovery with risks weighted to the downside,” the IMF reported. It predicted the economy will shrink by 10.4% this year and partially recover in 2021 with growth of 5.7%.

That’s a downward revision from its previous estimate of a 9.8% contraction this year followed by an expansion of 5.9% and in line with JPMorgan’s own projections.

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