Britain set for ‘euphoric’ £45bn spending spree
FAMIlIES are set to go on a ‘euphoric’ £45billion spending spree at the end of the pandemic, Treasury advisers said.
The Office for Budget Responsibility (OBR) said although money saved during lockdown could take years to spend, it is likely this would be frontloaded to the end of 2021 and beginning of 2022.
‘There may be a degree of euphoria once the pandemic is past, leading households to wish to treat themselves,’ the OBR said, with car sales set for a ‘strong rebound’.
The economy is set to roar back from its historic slump and will return to prepandemic levels by the middle of next year, according to the watchdog.
Output will climb by 4 per cent this year, due to continuing restrictions until the summer. But the economy is set to rally by 7.3 per cent in 2022 – the fastest rate of growth in 80 years.
It followed a 9.9 per cent slump in 2020, the biggest fall in output since the Great Frost of 1709. The speedier-than-expected recovery, prompted by a rapid vaccine roll-out, will be a relief for Britain’s workers.
The OBR is now expecting unemployment to peak at 6.5 per cent, or 2.2million people, at the end of this year – far lower than the 11.9 per cent it forecast last July. That means 1.8million people who were on course to lose their jobs should now be kept in work.
The OBR said this was ‘thanks partly to the latest extension of the furlough scheme’.
Chancellor Rishi Sunak has extended the £54billion scheme, which has so far paid the wages of 11.2million workers, until the end of September.
In its latest Economic and Fiscal Outlook, the OBR said: ‘The rapid roll-out of effective vaccines offers hope of a swifter and more sustained economic recovery, albeit from a more challenging point than we forecast in November.’
The watchdog thinks households will have saved up an extra £180billion by the summer, as lockdowns have limited their ability to spend. Come June, when restrictions are set to ease, it believes consumers will be primed and ready to splash these ‘accidental savings’ on socialising, shopping and holidays.
Mr Sunak told MPs: ‘The OBR now expect the economy to return to its pre-Covid level by the middle of next year – six months earlier than previously thought.
‘That means growth is faster, unemployment lower, wages higher, investment higher, household incomes higher.’
But the OBR warned that the UK’s recovery was conditional on vaccines working against new variants. It said in five years the economy would still be 3 per cent smaller than it would have been without the virus.
TAXES on long-haul flights will rise despite forecasts which suggest that the pandemic’s impact on the airline industry will be comparable to 9/11.
Air Passenger Duty (APD) rates for departures from Britain will increase from £80 to £82 for economy travellers, and from £176 to £181 for those in premium classes. Short haul rates remain frozen.
The announcement was made just hours after Ryanair boss Michael O’Leary told the Commons’ transport committee that APD ‘hits the poorest people hardest’.
Karen Dee, chief executive of the Airport Operators Association, described the increase as ‘a very damaging blow’.
The Office for Budget Responsibility said yesterday that they expected flight rates to take three years to get back to prepandemic levels - a similar amount of time it took for US passenger numbers to exceed pre-9/11 levels.