Britain set for early Covid-19 bounceback

BRITAIN’S economy will return to its pre-coronavirus peak earlier than expected, according to upgraded growth forecasts from the EY ITEM Club think tank.

The economy took a record 9.9 per cent hit last year due to the pandemic and the restrictions brought in to control its spread. However according to the influential think tank, which uses the Treasury’s models to make its forecasts, Britain’s economy has proved to be more resilient than initially thought.

As a result, the ITEM Club will say that it has upgraded its UK GDP growth forecast for 2021 from 5 to 6.8 per cent tomorrow. With the economy bouncing back faster and stronger than expected, the think tank believes that UK GDP will have recovered all its coronavirus losses during the second quarter of 2022.

Back in January, the ITEM Club predicted that the recovery would take place in the third quarter, and 2023 and 2024 in its quarterly forecasts last year.

With a faster recovery this year pulling growth forward, the forecast has reduced 2022 growth from 6.5 to 5 per cent.

The ITEM Club is also going to say that the stronger than expected economic recovery, together with Government support measures such as furlough, means unemployment will not rise as high as once feared. Back in January, the jobless rate was forecast to hit 7 per cent but the think tank now believes it will peak at 5.8 per cent in the fourth quarter.

On Friday, the closely watched Markit/cips purchasing managers indices indicated that the economic recovery is moving into gear, with better-thanexpected readings from the manufacturing and services sectors. Capital Economics said that, as well as the vaccine rollout, lifting of Covid-19 restrictions and the sharp increase in retail sales, lead it to believe that the UK will enjoy a stronger bounceback than its major European competitors and end 2022 with stronger GDP growth than all of them.

The UK saw a peak to trough drop in GDP of 21.8 per cent last year, while Germany’s was 11.5 per cent. However Capital Economics predicts UK GDP will be 3.7 per cent higher than its pre-pandemic level at the end of 2022, while Germany’s will be 2.7 per cent higher.

UK economist Thomas Pugh said: “By far the biggest story this week was the establishment and swift collapse of the European Super League.

“If there was an economics version where success depended on where GDP is at the end of 2022, then the UK may win.”