The UK economy is predicted to grow at its fastest rate since the second world war this year thanks to a stronger start than expected. It also looks set to outpace growth in the US.
The EY Item Club said businesses have adapted better to coronavirus restrictions and consumer spending has boomed as lockdown measures begin to relax. Rapid progress with the coronavirus vaccine rollout programme has also meant a quicker return to normality.
The group said it now expected UK GDP to grow by 6.8% in 2021, a significant upgrade on the 5% growth rate it estimated in January. This would mark the fastest annual growth in national income since 1941.
The UK economy shrank by 9.8% last year. Although this was against the 9.9% initially estimated, it was still the worst performance in the G7 and the worst annual performance for more than 300 years.
It said the improved near-term outlook means the UK economy is expected to return to its pre-pandemic peak by the middle of next year, and suffer less long-term economic “scarring”. This is three months earlier than previously estimated.
“The UK economy has proven to be more resilient than seemed possible at the outset of the pandemic,” Howard Archer, chief economic adviser to the Item Club, said.
“Businesses and consumers have been innovative and flexible in adjusting to COVID-19 restrictions and, while restrictions have caused disruption, lessons learned over the last 12 months have helped minimise the economic impact.”
The EY Item Club also predicted that unemployment will rise less than previously expected due to the continuation of furlough support and companies starting to hire again with the relaxation of lockdown.
It expects unemployment to reach 5.8% in the fourth quarter of 2021 – down from the 7% jobless rate it was predicting in January – and as low as 4.5% by the end of 2022.
The unemployment rate was 4% before the pandemic struck.
According to Goldman Sachs (GS) Britain will see faster economic growth than the United States this year.
The Wall Street bank said in a note to clients that it now expects British gross domestic product (GDP) to grow by 7.8% this year, above our expectations for the American economy.
A Reuters poll of analysts published earlier this month showed an average forecast for growth of 5.0% in the UK, while Bloomberg consensus was 5.5% for 2021 for the world’s fifth-biggest economy.
The International Monetary Fund has projected a 5.3% expansion.
“The UK economy is rebounding sharply from the COVID crisis,” Goldman Sachs said. “The April flash PMI was much stronger than expected in the UK, with the services PMI moving strongly further into expansionary territory.
In February, Goldman said it expected US GDP would grow by 6.8% in 2021 as president Joe Biden pushed ahead with a huge fiscal stimulus programme.
It comes as figures from Deloitte showed that UK consumer confidence jumped to record highs in the first three months of the year.
The latest quarterly Deloitte Consumer Tracker revealed confidence rose six percentage points in the first quarter to -11% — the fastest rate of quarterly growth in the tracker’s ten-year history.
Deloitte's analysis shows every measure of confidence saw both year-on-year and quarter-on-quarter growth.
“The UK is primed for a sharp snapback in consumer activity,” said Ian Stewart, the chief economist at Deloitte. “High levels of saving, the successful vaccination rollout and the easing of the lockdown set the stage for a surge in spending over the coming months.”
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