U.K. economy is set for a ‘dramatic slowdown,’ Deutsche Bank warns after jobless numbers rise

The U.K. economy is set for a dramatic slowdown due to a resurgence in infections and the ensuing new restrictions, according to a Deutsche Bank economist who commented after the latest data showed a rise in joblessness.

Deutsche Bank economist Sanjay Raja said the U.K. economy will grow about 16% quarter-on-quarter in the third quarter, before slowing to just 2% growth in the fourth quarter, with risks “tilted firmly to the downside.”

“As confidence weakens and uncertainty rises, we expect firms to continue to invest less and hire less. We also expect households to become more anxious about the broader economic outlook, in particular their own personal finances as job insecurity rises, pay cuts/freezes gain traction, and fiscal support is gradually reduced,” said Raja.

Raja said the worrying aspect of the rise in the unemployment rate to 4.5% in August was the separately reported data showing total hours worked still down by 15%. “With redundancies picking up to a post-GFC [global financial crisis] high, and the national furlough scheme slated to end in October, the likelihood of further job cuts remains high,” he said.

Robert Wood, chief U.K. economist at Bank of America, was critical of the decision to end the job furlough program at the end of October. “The problem in our view is a lack of jobs (and demand) not a lack of incentive to move jobs. In our view winding down fiscal stimulus poses considerable downside risks to the economy,” he said.

U.K. assets however was little moved, with the pound GBPUSD, -0.70% lower but holding above the $1.30 level, and the FTSE 100 UKX, -0.51% easing by 0.1%. Most of that caution was tied to global sensitivity to the news that a Johnson & Johnson JNJ, -1.91% coronavirus vaccine was halted.

Rolls-Royce RR, -4.38% shares dropped 3%, the second day of losses for the troubled engine maker after nearly doubling in value last week.

SSE’s SSE, +1.43% shares rose 3% after agreeing to sell its 50% share in two energy-from-waste ventures for £995 million to an infrastructure fund managed by First Sentier Investors.

This article was originally posted by MarketWatch