Britain’s GDP grew by record 16% after slump but borrowing soars on virus spending

New lockdowns put the UK at risk of double-dip recession

People shop at a Sainsbury's store, amid the coronavirus disease (COVID-19) outbreak, in London, Britain December 22, 2020. REUTERS/Hannah McKay
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Britain's economic recovery from a coronavirus-induced slump was quicker than expected in the third quarter but new lockdowns are threatening to cause another recession.

UK borrowing hit record levels in November and economists are now analysing the ripple effects of a tough new lockdown on London and its surrounding counties to tackle a more infectious strain of Covid-19.

Gross domestic product grew by a record 16 per cent from July to September, but that did not redress the 18.8 per cent slump in the second quarter when much of the economy was shut down.

Capital Economics said a double-dip recession was possible if the latest Covid-19 restrictions continue into 2021.

Tuesday's data showed the economy was 8.6 per cent down on where it was at the end of 2019. It also showed household incomes grew in the third quarter as workers returned from temporary layoffs, while consumer spending rose by almost 20 per cent.

Government borrowing hit £31.6 billion ($41.8bn), a record for November, taking public sector net debt to £2.1 trillion, the Office for National Statistics said.

"November's surge in borrowing is unlikely to be reversed much over the next few months as the ongoing Covid-19 restrictions keep many businesses closed", said Capital Economics analyst Thomas Pugh. "This will only increase talk of how to pay for the crisis, but the successful roll-out of vaccines next year and a rapid rebound in GDP could mean that the deficit returns to its pre-crisis level within the next few years without the need for much fiscal tightening."

State borrowing by Prime Minister Boris Johnson's government has reached £241bn since the first UK lockdown in late March, an increase of £189bn year-on-year. It means the UK's overall debt is 99.5 per cent of GDP -- the highest level for 58 years.

Some of the money raised helped keep millions of private-sector worker in jobs through the government's furlough scheme, with the bulk of wages to be paid until the end of April next year.

The government has also seen tax receipts slump by £38bn in the eight months to November year-on-year.

"When our economy recovers, it's right that we take the necessary steps to put the public finances on a more sustainable footing," Finance Minister Rishi Sunak said.