Radical steps needed to get economy to bounce back
FEARS of a slow economic recovery have intensified as experts warned it could take Britain five years to return to pre-coronavirus levels.
Gross domestic product (GDP) is likely to remain below where it was in 2019 until 2024, consulting giant EY said.
Ministers hope for a V-shaped economic recovery that would spike dramatically after the devastating Covid-19 drop.
But business leaders warned that the Treasury must take “radical steps” to secure a quick bounce-back.
EY economists believe GDP – the market value of goods and services – will contract by 11.5 per cent this year, in contrast to the eight per cent predicted just a month ago.
They say it will then bounce back to notch up 6.5 per cent growth in 2021 and nearly one in 10 will be unemployed at the end of this year and the beginning of the next.
Howard Archer, chief economic adviser to the EY Item Club, said: “Even though lockdown restrictions are easing consumer caution has been much more pronounced than expected. We believe consumer confidence is one of three key factors likely to weigh on the economy over the rest of the year, alongside the impact of rising unemployment and low business investment levels.”
Prospects
“The UK economy may be past its low point but it is looking increasingly likely that the climb back is going to be a lot longer than expected.”
Mr Archer said May’s growth undershot even the lowest forecasts and by the middle of this year the economy was a fifth smaller than at the start.
He said: “Such a fall creates more room for rapid growth later but it will be from a much lower base.”
Mr Archer said job losses and poor real-wage growth would hold back consumer spending, saying: “The labour market’s performance is key to the economy’s prospects over both the short term and further out.”
Despite the easing of lockdown measures, public reluctance to get back out and spend is hitting economic recovery.
Shops that rely on office workers for much of their trade such as food outlets like Pret A Manger are struggling as staff work largely from home.
Overall, the economy shrank by 19 per cent over the three month period to the end of May. Economists expected a record-breaking rise in GDP as restrictions were eased, but it failed to materialise.
Chancellor Rishi Sunak promised to pay employers £1,000 for each furloughed worker kept on until next year.
But employers fear the end of the job retention scheme in October will lead to an autumn wave of redundancies.
The CBI’s Josh Hardie said: “The latest data from EY sheds further light on just how much the economy has been affected by lockdown.
“While some recent indicators suggest we have turned a corner it’s clear many sectors
are still in acute distress. Sadly, the legacies of this crisis will likely be felt for some time.
“The Chancellor’s summer statement was an important step forward but many viable firms remain in danger as a result of reduced cash flow and a lack of consumer demand.
“The Government must continue to back a longterm sustainable recovery while responding to the challenges companies are experiencing right now.”
Research by the British Chambers of Commerce found firms were still operating at just half their normal capacity. Co-executive director Claire Walker said: “Reduced customer demand, an ongoing cash crunch and the potential for further lockdowns in the uncertain months ahead have led to firms facing extremely challenging conditions. “The time has come for the Government to take radical steps to slash the tax burden around employment to help companies pay valued staff rather than the Revenue. “A major boost to the Employment Allowance, and an increase in the threshold for employers’ National Insurance contributions should both be in the Chancellor’s sights if he wants to help viable companies save jobs as the furlough scheme comes to an end.”
A Treasury spokesman said: “Our support package is on a scale unmatched by any in recent history and, as the OBR has outlined, will help to mitigate the impact of the virus on our economy.
“Our Plan for Jobs provides significant and targeted support to put people’s livelihoods at the centre of our national renewal as we emerge through the other side of this crisis.”