April/May 2021

UK Economy could grow over 20% in 3 years

Analysis from Dr John Ashcroft on the economic impact of Covid-19

The IMF now sees a brighter outlook for the world economy. The Bank of England is feeling more optimistic about the UK. The Office For Budget Responsibility forecasts real growth of 11% over the next two years. Forecasts for the UK will be revised up. In nominal terms the UK could grow by over 20% over the next three years, underpinning growth for jobs and business in the medium term.

The International Monetary Fund is preparing to raise its forecasts for the global economy in 2021 and 2022. In January, the organisation released its latest Economic Outlook. Growth of 5.5% was expected in the world economy this year, followed by a growth of over 4% in the following year. Thanks to the success of the vaccination programme, the pressures of the pandemic are easing, providing a stimulus to growth. Thanks to the approval of President Biden’s spending plan, the American and world economy will benefit from his $1.9 trillion fiscal boost. In the US forecasts for growth are increasing to over 6%. The Bank of America is forecasting growth of 6.5% this year and 5% next. The BoA has become more convinced, consumers will get out and spend, as the $1,400 dollar stimulus cheques drop through the letterbox.

The Governor is feeling more optimistic…
In the UK, The Governor of the Bank of England is feeling more optimistic about the prospects for the year. The vaccination programme continues at pace. The slowdown in the economy, in the first quarter, is better than expected. Domestic holiday reservations are rising. Consumer confidence is on the rise. Business confidence in manufacturing and construction is particularly high. Asked what sort of recovery the UK could expect, Andrew Bailey said “I am now more positive but with a large dose of caution. We now see upside risks to our January forecast, with some chance the peak in unemployment may be lower than expected.” In January, the Bank were forecasting growth of 5% for the current year. An upward revision seems probable. 6% to 6.5% growth, seems possible.

Economic output fell in January, as lockdown returned to the UK. The month on month comparison was better than expected by many. Better than expected, according to forecasts from the Bank of England. The Bank had been braced for a 4% setback in the quarter as a whole. Commenting on the data, Chancellor Rishi Sunak said “The figures highlight the impact the pandemic continues to have but we have reasons to be hopeful. We have set out a roadmap out of the pandemic, the NHS have vaccinated over 23 million people. My budget set out our three point plan, to protect the livelihoods of the British people.”

Boris Johnson’s timetable for recovery suggests the hospitality sector could be in full recovery mode from the end of June. According to Andy Haldane, Chief Economist at the Bank of England. The UK economy is like “a coiled spring”, set to release lots of financial energy.“Consumer confidence will surge back, the economy will be firing on all cylinders. Success with the vaccination programme and the easing of lockdown will assist the process,” he said. British households have amassed an astonishing £150 billion of cash apparently. They will be ready to return to the restaurants and book a much needed holiday. They may even take a trip to the cinema.

Unemployment actually fell in February to 5%, a modest improvement in the jobs market. Latest data from HMRC confirms that 4.7 million were on furlough at the end of February. Over one million of which, were in the accommodation and food sector. The number of workers furloughed is expected to drop rapidly in the second quarter. In September last year, the total number had dropped to 2.5 million as growth returned. A big bounce back is expected in the leisure sector as pubs, restaurants and hotels reopen for business. According to the latest IHS Markit/CIPS data, business activity across the UK increased in March. The rate of expansion was the fastest for months. The expansion was fuelled by a rise in new orders, attributed to a bounce back ahead of easing lockdown measures. Stronger consumer confidence and a surge in demand for residential property services also featured. Business expectations for growth surged to the highest since comparable data were first available in 2012. Employment rose for the first time since the pandemic struck, as firms expanded capacity to meet demand.

Shops are due to re-open on 12 April. The Chancellor is urging people to “get out there and spend”. “Go have fun and spend money”. Rishi Sunak said, people should “do their bit” by spending savings they had built up during the lockdown …socially distanced of course.

Dr John Ashcroft

Dr John Ashcroft specialises in economics, strategy and financial markets. He is author of The Saturday Economist, great updates every week on the UK and World Economy. The Saturday Economist Live is now available as a podcast and on Zoom.  “Fast Moving, Content Rich and Fun.” Find out more… www.thesaturdayeconomist.com