Economy ‘will bounce back faster thanks to success of vaccinations’
Budget watchdogs say recovery to pre-covid levels will be six months earlier than predicted
THE UK’S world-beating vaccination programme will speed up the economic recovery by six months as the nation experiences a “swifter and more sustained” fightback from the pandemic, the Government’s financial watchdog has said.
The Office for Budget Responsibility hailed the “unprecedented speed” of global efforts to develop Covid-19 treatments, “with the UK in the vanguard of their discovery and rollout”.
The OBR now believes the “overwhelmingly positive” news on vaccines means the economy will have recovered all the ground lost to the pandemic by the middle of next year, six months earlier than thought, as the programme is ahead of its November assumptions.
The pace of the distribution has helped the UK vaccinate more than 20million people – more than a third of all adults – and achieve the fourth highest vaccination rate in the world.
Although the watchdog predicts a 3.8 per cent hit to the economy from the lockdown in the latest quarter, the success of the programme has paved the way for a more rapid reopening, the OBR’S chairman Richard Hughes says.
He said: “The winter resurgence of infections and third lockdown have delayed the economic recovery we forecast back in November.
“But the accelerated rollout of vaccines should enable a faster reopening of the economy, and a more rapid recovery in GDP later this year. Output is now expected to reach its pre-pandemic level in mid-2022, six months earlier than we predicted in our last forecasts.”
The Government is aiming to offer a first dose to all over-50s by April 15 and the entire adult population by July 31.
According to Our World in Data figures, the UK has vaccinated 31 people per 100, four times the rate of the EU.
The recovery will gain further fuel from the Chancellor’s extension of the furlough, a move which should limit unemployment to 6.5 per cent, saving around 1.8million more jobs than predicted by the watchdog last year.
The UK is also poised for a surge in consumer spending as restrictions are lifted and a spending spree from businesses to take advantage of the “superdeduction” tax break for firms, the watchdog added.
Sir Charlie Bean, a member of the OBR’S senior committee, said: “It’s always possible that there may be a sense of euphoria once the pandemic is in the past, and consumption might rebound even more strongly – that’s an upside risk to our forecast.”
The OBR estimates 4 per cent growth for the economy this year after the biggest slump for 300 years in 2020.
But economists said its forecasts could be too pessimistic due to a combination of a successful vaccine rollout, economic reopening and an estimated £180billion in enforced savings built up during the pandemic.
Doug Mcwilliams, founder of the Centre for Economics and Business Research, said: “Despite the record contraction in GDP in 2020, it was never going to be too difficult to get the economy to bounce back this year as long as vaccination rollout was successful.
“The economy will be pushed along
‘It’s possible that there may be a sense of euphoria and that consumption may rebound even more strongly’
by some mighty tailwinds later this year.
“The OBR is coming into line with Cebr in expecting consumer spending in the next year to bounce back.
“And the actual growth could be even more than this as those of us who have been locked up rush out to meet friends, travel, go on holiday or go to bars, clubs and forms of entertainment. The post-lockdown spending boom could be the party to end all parties.”
The OBR predicts the scarring left by the virus will leave the UK economy 3 per cent smaller than before the Covid-19 pandemic, but added that the quicker rollout of vaccines or a faster rundown of savings “could deliver a swifter economic recovery” and lower medium-term scarring.
However, it also warned: “Setbacks in the rollout of the vaccines, the emergence of new vaccine-resistant variants, or reduced compliance with residual public health restrictions could force governments back into periodic lockdowns, with more adverse consequences for the economy in the short and medium term.”