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Though there is a long way to go, many commentators have offered positive predictions for the UK’s economic recovery over the coming months and years.
The 2020 economic decline has proven to be the worst since records began in 1948. According to a recently released House of Commons report, the economy shrank by 24% at its lowest point in April 2020. Comparatively, the depression seen in the 2008 Financial Crisis saw a GDP fall of around 6%, with normal economic levels returning five years later and unemployment levels returning to regular numbers by 2015.
In March, during the Budget announcement, Rishi Sunak stated that the UK’s economy was predicted to grow 4% this year and a further 7.3% in 2022. This was largely attributed to the success of the vaccine rollout, and the corresponding reduction in COVID-19 case numbers, which helped make it feasibly safe for society to resume commercial activity.
Schroders have since revised their own forecast for economic growth from 4.5% to 5.1% in 2022. They have linked this to improved businesses confidence, which should increase capital expenditure, and an upward revision of their estimate of household savings, providing greater room for a spending recovery.
Andrew Bailey, Governor of the Bank of England, highlighted that there was good news on the horizon for the economy. However, he urged caution, stating:
“Let’s not get carried away. It takes us back by the end of this year to the level of output we had essentially at the end of 2019 pre-COVID. So that is good news in the context of where we’ve been, but it still means that two years of output growth have been lost to date”.
Analysis from Deloitte has suggested that the economic recovery began in February, following increased retail sales linked with the announcement that schools would reopen on the 8th of March.
The Prime Minister’s indication that all social distancing measures would be lifted from the 21st of June, under the roadmap out of lockdown, also contributed to boosting consumer confidence and was cemented following the reopening of non-essential shops and outdoor hospitality venues on the 12th of April.
Indeed, it was assessed by Springboard that retail footfall was up by 87.8% across England and Wales after the first week of shops reopening.
However, just 23% of hospitality venues managed to resume trade, confirming previous fears that the majority would not have the ability to operate under the new guidelines.
Consequently, many businesses and customers have waited in anticipation for Boris Johnson’s recent announcement which confirmed that the UK would progress to the next stage of the roadmap where, amongst other things, indoor hospitality could reopen.
With approximately 40 days left before all restrictions are planned to be lifted, firms will need to decide how to strategically approach the way they conduct daily business operations post-pandemic and confirm how new norms will feature in those plans.
Importantly, many predictions factor-in the impact of Brexit on the UK’s economic recovery. Schroders highlight how the value of goods exported to the EU in January 2021, which was the first month since the end of unrestricted trade, fell by £5.5 billion (40.5%). Likewise, the value of goods imported from the EU was down by £6.6 billion (28.9%).
Moreover, the extreme dependency on the furlough scheme could be cause for concern going forwards. Though the official unemployment rate was 5.1% around December 2020, this excluded close to five million individuals who had been furloughed, around two million self-employed individuals who received government support and approximately three million self-employed individuals who were deemed ineligible to receive that support.
Accordingly, it will be integral that the withdrawal of government support is in line with the reopening of businesses and the stabilisation of the economy. Whilst the majority of predictions account for an unemployment figure that is expected to rise above 6%, if it were to rise much higher it could be disastrous for the economic recovery process.
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