Economy to grow at fastest rate since the 1940s

The Bank of England has forecast the economy will grow this year at its fastest pace since the Second World War as Britain stages a vaccine-fuelled recovery.

The Bank predicts gross domestic product (GDP) will rebound by 7.25% in 2021 up from its previous prediction of 5% and the best year of growth since 1941.

It comes after the pandemic saw the UK suffer the biggest drop in output for 300 years in 2020, when it plummeted by 9.8%.

The economy is now thought to return to pre-pandemic levels by the end of 2021 as consumers spend lockdown savings.

The latest lockdown is set to see GDP fall by around 1.5% between January and March – far less severe than first feared.

The bank also sharply cut its forecasts for unemployment over the year, now predicting that the jobless rate will peak at 5.5%, down from the 7.75% previous forecast.

The extension of the furlough scheme has softened the blow, while the growth rebound is set to see most furloughed employees return to work when it ends.

The rosier view for the economy this year came as the Bank’s Monetary Policy Committee (MPC) voted unanimously to hold interest rates at 0.1%.

Bank governor Andrew Bailey said the brighter outlook was “good news”, but he cautioned against getting “carried away” by the roaring growth figure, with the potential for a resurgence in Covid-19 and new variants.

The rebound will begin to pare back after 2021, as the boost from pent-up consumer demand fades, while there will be long-term pandemic scarring equivalent to around 1.25% of GDP.