UK economy to avoid double-dip recession - report
The UK economy looks likely to avoid a double-dip recession thanks to a better-than-predicted performance in November 2020, according to a new report published today.
The EY ITEM Club 's Winter Forecast says that with the economy contracting by just 2.6 per cent in November, it is now expected to have had a flat performance across the fourth quarter.
While the latest Covid-19 restrictions are expected to cause a 3 per cent to 4 per cent contraction in Q1 2021, the absence of a contraction in Q4 2020 means the UK may - just - avoid its first double-dip recession since the 1970s.
Vaccine roll-outs are underway and a Free Trade Agreement with the EU has been secured, putting the UK in position for a steady economic recovery from Q2 2021 onwards.
The latest forecast predicts growth of 5.0 per cent in 2021, 6.5 per cent in 2022, 2.0 per cent in 2023 and 1.8 per cent in 2024.
With a better-than-expected Q4 performance and the Office for National Statistics revising earlier GDP data upwards, the EY ITEM Club now estimates that the UK economy shrank by a record 10.1 per cent in 2020, an improvement on its December forecast of an 11.6 per cent contraction.
Positively, the point at which the UK economy is expected to regain its pre-Covid-19 peak is inching forward, with this now forecast to happen in Q3 2022 - an improvement from the 2023 and 2024 dates predicted in earlier forecasts.
The EY ITEM Club forecasts that unemployment will peak at 7 per cent in mid-2021 before starting to fall towards the end of the year.
This would be a significant improvement on the 7.7 per cent unemployment rate peak expected in the Autumn Forecast and the 9 per cent peak expected in the Summer Forecast.
The EY ITEM Club predicts that consumer spending likely contracted again in Q4 2020 after bouncing back strongly in Q3 from a record contraction in Q2.
The EY ITEM Club estimates that consumer spending contracted a record 12.6 per cent over 2020 but will be up 5.1 per cent in 2021 and 7.4 per cent in 2022.
Business investment is expected to improve in 2021 and then accelerate in 2022 as confidence is lifted by a firmer and more settled business environment.
The EY ITEM Club forecasts business investment to expand 14.2 per cent in 2022 following a 1.8 per cent increase in 2021 - 2021 's low overall growth figure masks improvement throughout the year.
Simon O 'Neill (pictured), office managing partner at EY in the Midlands, said: “There is positivity and opportunities for growth within key sectors in the region.
“The region 's manufacturers, for example, have weathered challenges in recent years, and innovation has been critical. Now there is greater clarity, the onus is on recovery and strategic transformation.
“As the economy gets beyond the first quarter and into its recovery, physical infrastructure, including HS2 and advanced technological connectivity, will play an important role in levelling up the UK. ”
“Businesses need to be prepared. Now is the time to firm up post-pandemic plans as the shape of the future economy becomes clearer. ”