2021 Growth Forecasts Improve

The UK economy will grow by 6.8% in 2021 according to the EY Item Club’s spring forecast, up from the 5% predicted in their winter forecast. That forecast would put growth at the fastest rate since the second world war.

According to the economic forecasting group, the higher rate of growth is partly because the economy held up better in Q4 2020 and the Q1 2021 contraction was less than expected, despite lockdown being in place for much of the period.

GDP grew by 1.3% in Q4 2020 rather than showing flat performance as previously predicted, giving the economy a head start on the race to recovery.

It also credited the more optimistic projection to Chancellor Rishi Sunak’s fiscal support announced in the March Budget, the vaccination programme and the Government’s roadmap.

The group predicts the economy will return to its Q4 2019 performance in Q2 2022, six months earlier than previously estimated. It’s thought this will be helped by a boom in consumer spending after savings increased during lockdown.

It says GDP will grow a further 5% in 2022, suggesting “businesses can start to plan for the possibility of two years of strong economic performance”.

Consumer confidence is reported as having increased at the fastest rate in a decade in Q1 2021. This includes confidence around the state of the economy, general wellbeing as well as personal debt levels.

‘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.’

The EY Item Club is also predicting that unemployment will peak at lower than previously expected levels, as furlough support continues and companies start hiring again in step with the relaxation of lockdown. Using the Treasury’s economic models to produce its forecasts, the Item Club said it expected unemployment to reach 5.8% by the end 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.