THAT’S WHAT YOU CALL A BOUNCE BACK!
Economy set to grow at fastest rate for 70 years
BIG-SPENDING consumers will send the economy surging back to pre-Covid levels this year, the Bank of England said yesterday.
Spurred on by the vaccine rollout, the boom will trigger the country’s fastest growth since the Second World War.
As shares hit a 14-month high, Bank Governor Andrew Bailey said: “This is a bounce back.”
The rebound will see most workers helped by Chancellor Rishi Sunak’s furlough scheme return to
work, with the jobless rate tipped to peak at 5.5 per cent, down from the 7.75 per cent previously expected.
Experts meanwhile upped their forecast for the expansion of the economy to 7.25 per cent, from the 5 per cent expected in February. That would be the biggest rise in UK output in more than 70 years.
The FTSE 100 shares index closed last night up 37 points at 7,076 – its highest since the end of February last year.
Mr Bailey said: “This is a bounce back. This time last year we were talking about the biggest fall since the 18th century, so it’s good news.”
One City expert said the country was headed for an “explosive” economic recovery fuelled by a “war chest” of savings amassed by households while lockdowns kept shops shut and prevented holidays.
Members of the Bank of England’s Monetary Policy Committee yesterday voted unanimously to keep the base interest rate at the rock-bottom emergency level of 0.1 per cent.
They also backed continuing with £895billion in monetary support measures to encourage the recovery. The Bank’s
report said: “New Covid cases in the United Kingdom have continued to fall, the vaccination programme is proceeding apace and restrictions on economic activity are easing.
“Reflecting these developments, GDP [Gross Domestic Product] is expected to rise sharply in the second quarter of 2021. And GDP is expected to recover strongly to pre-Covid levels over the remainder of this year.
“Demand growth is further boosted by a decline in health risks and a fall in uncertainty.”
The Bank’s experts expect the economy, which shrank by nearly a tenth last year, to outperform both the US and the euro zone countries.
Mr Bailey said: “Given that we had such a large fall last year, it is good news that we are going to see such strong growth this year.”
He cautioned however that the boom will be temporary, as the Bank forecast that growth will slip to 5.75 per cent next year before settling at 1.25 per cent in 2023.
Mr Bailey added: “Let’s not get carried away. It’s good news in the context of where we have been. But another way of expressing that is that two years of output growth have been lost.”
The Bank sharply cut its forecasts for unemployment this year, predicting the jobless rate will peak at 5.5 per cent, not 7.75 per cent as it warned earlier.
The extension of Chancellor Sunak’s furlough job retention scheme has softened the blow.
Inflation will likely surge to 2.4 per cent in the final three months of this year, fuelled by rising prices for energy, but it should return to around 2 per cent in the medium term.
Mr Bailey warned there was still more chance of the economy missing the growth forecasts than beating them, as uncertainty caused by the pandemic continued. He said: “If there is another [virus] variant, then there will be questions as to how it relates to existing vaccines.”
After some disruption to trade early this year following Brexit, Mr Bailey said “firms are adjusting to the new arrangements. Exports have rebounded materially, but imports remain weak.”
Julian Jessop, an economics fellow at free-market think tank the Institute of Economic Affairs, last night urged the
Chancellor to rethink Budget tax rises in the light of the Bank of England forecasts.
He said: “It looks increasingly likely that Government borrowing will continue to undershoot the forecasts that the Chancellor used to justify the tax increases and departmental spending cuts.
“Officials can stop casting around for even more ways to increase the tax burden. A booming economy will do the job of repairing the public finances for them.” City experts yesterday welcomed the upbeat forecast from the Bank. Laith Khalaf, an analyst at AJ Bell, said the Bank is Boom time...Bank of England’s Andrew Bailey expecting a consumer spending spree to fuel an explosive economic recovery, “funded by the war chest savers have built up throughout the pandemic.
“This is a unique situation, where consumers have been restrained by law and are now being gradually let off the leash, so even the best spreadsheets at the Bank of England aren’t going to nail this forecast with any precision. If consumers really let rip, the economy could be heading for a big boom.”
Bullish
Paul Danis, of Brewin Dolphin, said: “It’s likely that growth will be stronger than almost any major economy over the last three quarters of this year.”
Giles Coghlan, chief currency analyst at HYCM, said: “There is an expectation that the estimated £150billion of savings that consumers have accumulated over the past 14 months or so will steadily be released into the economy in the months ahead.
“Uncertainty is dissipating, and we are seeing the pound and FTSE 100 go on initial mild bullish runs. The positive performance of the pound will be welcomed by holidaymakers as many Britons prepare to travel abroad again later this year.”
OPTIMISM surging through the British economy is proof of our resilience and ambition as a nation. We are on course for the fastest growth in more than 70 years, according to the Bank of England.
Not long ago, we faced catastrophe. There was the real danger of mass unemployment as businesses went bust. Boris Johnson and Chancellor Rishi Sunak rose to the challenge and invested billions to support jobs and stop companies failing.
This, combined with the phenomenal success of the vaccine rollout, means the country is in position to make the most of every opportunity as Britain unlocks.
Last year the economy suffered its biggest contraction in three centuries but the UK is poised to bounce back. Unemployment was predicted to hit 7.75 per cent this year but is now expected to peak at 5.5 per cent.
Households have an extra £150billion in savings. This is rocket fuel for the economy which can help revive our high streets.
Each new trade deal signed will prove a foundation for future prosperity. There is good reason to believe that the Britain which emerges from the pandemic will be a stronger and fairer country.
Everyone – whether they work in the Treasury or a cornershop – who has kept our economy alive deserves our thanks.