Economy may take years to regain footing

BRITAIN’S economy may not return to its pre-coronavirus size until 2023, according to the EY ITEM Club think tank.

The warning comes ahead of the release this week of data which is expected to show that manufacturing and service sectors have stalled. Additionally, the Office for National Statistics is tipped to report an increase in the number of benefit claimants.

The ITEM Club, which uses the Treasury’s models to make its forecasts, said that UK GDP may shrink by 13 per cent during the second quarter, due to disruption caused by Covid-19 and the drastic measures taken to fight its spread. That would result in a 6.8 per cent contraction for 2020.

However even with the ITEM Club pencilling in a recovery for the second half of the year and growth in 2021, its chief economic adviser Howard Archer said: “I don’t see it [the economy] returning to the size it was at the end of 2019 until late 2022 or maybe even 2023.”

On Tuesday, the ONS is expected to unveil a huge leap in the number of people claiming benefits. Economists believe it will say that 1.55million people claimed benefits in March, an increase of 300,000. The previous month, the claimant count went up by just 17,300.

However Investec chief economist Philip Shaw said that even though the increase is likely to be large, it will be dwarfed by the April figure, as the lockdown took place late on in March.

On Thursday, the Markit/cips PMI surveys are set to show further deterioration in the manufacturing and services sectors. The initial PMI score for services is expected to be a record low of 29.4, while manufacturing is forecast to be 41.5. A PMI score below 50 points to contraction.