As the government continues to put forward an extremely cautious narrative about re-opening, more evidence emerged today that the economy is surging ahead. The International Monetary Fund has once again upgraded its forecast for Britain's growth this year: its April prediction of 5.3 per cent growth in 2021 has now been revised upward to 7 per cent. If correct, the UK could boast one of the fastest growing economies amongst major countries, with a recovery looking to be on par with the United States.
Today’s update from the IMF fits a trend. Just this weekend the EY Item Club forecast 7.6 per cent growth this year – the fastest rate of growth in Britain for 80 years. These forecasts join a list of increasingly optimistic predictions for economic recovery, which include heavy hitters like the Bank of England as well.
So what could derail Britain's economic recovery? In short, plenty: inflation is a growing concern, as monthly updates continue to overshoot consensus. Fears of future lockdowns – or at least reimposed restrictions on business activity – are another. As I say in the Daily Telegraph today, rapid recovery is still not guaranteed. There are still plenty of hurdles to overcome – including labour shortages due to Covid and Brexit, as well as the infamous ‘pingdemic’ that is threatening to put millions of people back into self-isolation in the coming weeks. And that’s all before you get to the government’s negative narrative around reopening.
Whitehall’s confidence problem – which saw 19 July treated more like doomsday than ‘freedom day’ – does little to inspire business confidence. Nor do whispers of autumn crackdowns, which have been mentioned by ministers and senior officials within the past few weeks. While businesses have managed to adopt and change their practices fast to fit lockdown criteria, threats of restrictions post-vaccine rollout may start to test their tolerance. If vaccines aren’t the light at the end of the tunnel, as was sold by government at the start of the third lockdown, employers and business owners who have just held on during the past 16 months may struggle to do so.
The IMF’s forecast today is a much-needed reminder that economic recovery is in sight. But these forecasts cannot be taken for granted. Just as the recovery timeline has been revised upwards, it can also go in the other direction – especially if government policy, and messaging, stands in the way of recovery.