UK Looks Set for Strongest Economic Growth Since the Second World War
As the country and its economy finally opens after three disastrous national lockdowns, the UK looks set to enjoy some of the strongest growth rates since 1945.
The Bank of England has predicted a stronger than anticipated recovery from the Covid-19 lockdowns and a 2021 GDP growth rate is anticipated at an impressive 7.5%, up from a 5% expected post-lockdown bounce growth rate.
The Fundamentals Behind the Numbers
Rapid testing and vaccinations, the extension of furlough and SSEIS scheme, as well as a stubborn demand to return to normality amongst the UK’s business community seem to be driving the figures – the return of air travel and the opening of European holiday destinations is also a welcome sign that there remains notes of positivity and a pent up demand for consumer demand and services.
The revised growth rate would be the fastest since the second world war. However, it follows a collapse of almost 10% in 2020, the worst decline for more than three centuries – an unenviable economic record.
Interest rates have also been held at the historic low of 0.1% which means that a return to pre-2020 economic levels and look set to remain at this figure for the foreseeable future.
A Cause for Optimism & Fewer Job Losses
Whilst the economic noises are positive, the new Indian variant casts a shadow on the potential global outlook for financial recovery and should be closely monitored – on balance however the news remains cautiously optimistic with low interest rates, lower unemployment and a return to growth this year.
As lockdown measure are relaxed the economy is rebounding but it must be remembered that we have lost some two years of economic growth and the nation must be agile enough to respond to global financial and pandemic related events.
The furlough scheme is expected to be finalised by September and the UK is predicted to recover to its 2020 levels – the good news is that unemployment is anticipated to reach a lower peak than previously forecast with a peak at just under 5.5% in the autumn, down from 8%. In reality this equates to some 700,00 job, welcome news to the service, transport and consumer focussed industries – it is also expected that pay rises will remain subdued.
Inflation Looks Set to Rise
In addition, as the lockdown eases and spending increases, the Bank of England will also be closely examining inflation related markers as in the months ahead. Consumer Price Inflation (CPI) has seen a jump to 1.5% from 0.7% last month, which despite being within the BOE’s 2% target zone, does act as a cautionary tale for the travel of direction of inflation in the UK.
With a loss of GDP 20% in the first half of 2020, business and families alike have adapted to the new realities, the news is welcome and we have much to be optimistic but if the past year or so has taught us anything, it is that Covid-19 throws the occasional cure ball and the Indian variant has the potential to disrupt global markets further.
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