Britain won’t fully recover until 2022

BRITAIN’S economy will not return to its pre-pandemic size until the second quarter of 2022 due to staff shortages, the HGV driver crisis, flagging demand, and rising costs, economists warn.

Gross domestic product was on track to return to its 2019 peak by the end of this year, but with the economy stalling, Britain is now likely to join Italy as the last of the G7 nations to recover from coronavirus. The UK suffered the biggest drop in output out of the G7.

Economists say that with the UK still grappling with Covid-19, along with subdued consumer demand, rising energy and fuel costs, staff shortages and the ongoing HGV driver crisis leading to shortages of food, goods and raw materials, full year GDP is now likely to come in at 7 per cent for 2021, rather than the 7.6 per cent forecast in July.

Martin Beck, senior economic adviser to the EY ITEM Club think tank, said: “We were bullish in our last forecast in July, we had full-year growth at 7.6 per cent, but that will probably be knocked back down. Hopefully that will be offset by stronger growth next year.

“But that said, we’ll still see a strong recovery this year because the hole we were in last year was so deep.”

IHS Markit chief business economist Chris Williamson said: “The risks are tilting in that direction (of lower-thanexpected growth). Most people have downgraded their fourth quarter forecasts because of the loss of economic momentum. Supply constraints could subdue growth for some time.”

This week data from the Office for National Statistics is expected to confirm that the economy grew by 4.8 in the second quarter. It will also see the end of furlough and the other Government support schemes that have protected incomes.

More than 1.5 million people are still on furlough and its end is expected to see an upturn in the unemployment rate, which has been falling since December and currently sits at 4.6 per cent.

Pantheon Macroeconomics chief UK economist Samuel Tombs said: “We expect the unemployment rate to rise to about 5 per cent in the fourth quarter and underemployment to increase sharply.”

Last week the Bank of England raised the prospect of interest rates being hiked in order to combat rising inflation, which is tipped to exceed four per cent in the fourth quarter and stay there for some time. It is believed that Governor Andrew Bailey may use a speech tomorrow to give hints about the timing of what would be the first rate hike since July 2018.