Investors may be wise to avoid stocks in the UK’s accommodation and food sectors into 2021 after a Whitehall report estimated that the industry could suffer as much as a 26% decline in gross domestic product (GDP) in the first quarter of next year.
According to a Times report, a dossier drawn up by the government investigating the economic impact of the pandemic on the UK has also predicted the sectors will see a 68% GDP decline for 2020 as a whole.
Meanwhile, other industries expected to take significant hits between January and March next year include administration and support services, which is estimated to see a 25% GDP decline, and transportation with a 14% fall in the quarter.
Other sectors given a ‘red’ rating by the government, indicating high likelihoods of revenue and job losses, include aerospace, the automotive sector, the arts, tourism, cruises and ferries, and sports.
Given this analysis, big players in these sectors such as Premier Inn hotel owner Whitbread PLC (LON:WTB) and Holiday Inn proprietor Intercontinental Hotels Group PLC (LON:IHG), as well as restaurant chains such as Wagamama owner Restaurant Group PLC (LON:RTN), could be set for economic pain to continue into the new year as long as restrictions remain in place.
Other firms that could suffer if the government forecasts prove accurate are aircraft engine maker Rolls-Royce Holding PLC (LON:RR.) as well as cruise operator Carnival PLC (LON:CCL), both of which have already suffered hardships in 2020.
Look to utilities, real estate and defence for protection
On the flip side, the dossier also highlighted several sectors expected which are expected to experience little to no GDP declines for the first quarter of the new year, with some aligning with traditional haven stocks that often draw investors during times of volatility.
One such example is the utility sector, covering the UK’s electrical and water firms which tend to be known for their low share price growth but reliable dividend potential. The government assessment expects the sector to remain flat from January to March, recovering from an expected 4% GDP decline for 2020.
Market-listed firms included in this sector range from Untied Utilities Group PLC (LON:UU.) as well as water providers Pennon Group PLC (LON:PNN) and Severn Trent PLC (LON:SVT).
Real estate is another sector predicted to suffer a reduced impact, with GDP declines of just 2% expected for the first quarter of 2021. This could prove good news for real estate investment trusts such as Supermarket Income REIT PLC (LON:SUPR) and Custodian REIT PLC (LON:CREI).
Meanwhile, the only major sector estimated to achieve GDP growth, albeit of only 1% compared to a 1% decline for all of 2020, was the public administration and defence industries, possibly helped by plans for higher government spending going forward.
Firms in line to benefit from this could include outsourcing groups such as Serco Group PLC (LON:SRP) and Capita PLC (LON:CPI) as well as defence firms Babcock International Group PLC (LON:BAB) and BAE Systems PLC (LON:BAE).
The defence firms, in particular, are lining up for a payday following last month’s announcement of a new £16.5bn armed forces spending spree, amounting to a 10% increase in the UK’s defence budget over the next four years.