Economy Forecasting Group, EY ITEM Club, has predicted that the United Kingdom economy will grow at the fastest rate since the second world war this year.
The EY Item Club stated that this was after businesses in Britain adapted better to coronavirus restrictions and consumer spending booms as lockdown measures are relaxed.
As businesses and households prepare for looser controls this spring, the economy forecasting group said it had upgraded its growth forecasts for 2021.
This followed a stronger start to the year than expected and as rapid progress with the vaccine programme enables a swift return to relative normality.
According to the group, GDP is expected to grow by 6.8% in 2021, against the 5% growth rate it earlier estimated in January, which would indeed mark the fastest annual growth in national income since 1941.
The UK economy shrank by 9.8% in 2020, which was the worst performance in the G7.
EY ITEM Club said the improved near-term outlook means the UK economy is expected to attain its pre-pandemic peak by the middle of next year, helped by a boom in consumer spending after a rise in saving by wealthier households during lockdown.
This reflected the expectations of accelerated growth as the economy reopens, consumer confidence also increased at the fastest rate in a decade in the first three months of 2021, all these fuelled an optimistic roadmap out of lockdown.
According to the Deloitte Consumer Tracker, every measure of confidence, from the state of the economy, to general wellbeing and personal debt levels – increased over the period.
The chief economist at Deloitte, Ian Stewart, said, “the UK is primed for a sharp snapback in consumer activity.”
Stewart added that “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.”
He therefore stressed that the government’s decision to extend its furlough support through to the autumn had also boosted sentiment, limiting the rise in unemployment.
“The eventual peak in unemployment looks set to be far lower than had been feared, and far lower than following any downturn in the last 30 years.”
According to EY Item Club predictions, as furlough support continues and companies start hiring again in step with the relaxation of lockdown, unemployment rates will peak lower more than the previously expected levels.
The group stated that as the economy recovers, it is vital that businesses step up by providing opportunities to support younger workers back into employment and invest in the skills and training that many have missed out on over the last year.
The Chief Economic Adviser to Item Club, Howard Archer, said the latest forecasts implied a smaller degree of permanent “scarring” for the economy.
“The UK economy has proven to be more resilient than seemed possible at the outset of the pandemic.
Archer added, “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.”
Deloitte’s Stewart stated that the main block to an improving outlook for the UK economy and consumer confidence was the emergence of new, vaccine-resistant variants and a third wave of cases.
“With global case rates rising, we are not completely out of the woods.”