Britain may be about to go from one economic extreme to another. This winter the OECD calculated Britain suffered one of the highest levels of economic damage in the developed world, compared with the year before, due to its stringent lockdown. Fast forward to spring and the UK’s trajectory for economic recovery is now being revised, with forecasts only moving in one direction: up.
Today alone, two heavy hitters boosted their predictions. This morning EY Item Club revised its 2021 growth forecast from 5 per cent to 6.8 per cent – which, if accurate, would see the UK grow at its fastest rate on record, recovering to pre-pandemic levels months earlier than originally anticipated. Goldman Sachs followed in the afternoon, publishing one of the most bullish forecasts for 2021 to date: estimating a staggering 7.8 per cent growth – nearly double the Office for Budget responsibility’s forecast for the year (it’s much closer to what the public body predicts for 2022).
Goldman Sachs’ forecast suggests the UK will outpace America’s recovery, which it also upgraded to 6.8 per cent. It joins a host of other forecasters, including Oxford Economics and Capital Economics, which have been predicting growth to be above 6 per cent this year (the latter expecting a full economic recovery by Q4 this year). If independent forecasters are closer to the mark, the UK is set for a much sharper V-shaped recovery than currently expected: good news for business prospects, keeping unemployment relatively low, and keeping (still sky-high) borrowing below current predictions. Alongside the Budget in early March, the OBR forecast a 354.6 billion deficit for 2020-21, downgraded by the Office for National Statistics to just over £303 billion – still an increase of more than £200 billion from the original March 2020 estimate, but a notable £51.5 billion less than the OBR expected.
While a return of services-based industry, on which the UK economy is heavily reliant, can explain part of the expected economic boom, it’s primarily thought to be a vaccine bounce: the UK continues to storm ahead with its vaccine rollouts, currently tied in fifth place with the United States in the international race for doses administered based on population size. This isn’t about the here and now, but expectation for the future: monthly GDP growth since the third lockdown began has shown a clear ceiling on how much Britain's economy can recover while major restrictions remain in place. But confidence is growing about the coming months: that jabbed Brits will feel safe to return to restaurants, bars and cinemas, ready to spend at least some of their lockdown savings stored up over the past year.
What will determine whether the economy follows what now looks like a more conservative forecast from the OBR or these more optimistic estimates? Assuming the UK’s vaccination timeline remains on track, much will depend on how free the 21 June – when all restrictions theoretically life – actually turns out to be. Whether separate reviews into social distancing rules and international travel eliminate outstanding Covid rules – or enshrine them – could make or break these increasing numbers of optimistic forecasts.