Forecast provides hope of avoiding double-dip recession
By Rob Freeman | 28th January 2021
The UK economy is on course to avoid a double-dip recession according to a major new economic forecast after a stronger than expected performance in November.
After the economy contracted by 2.6 per cent in the month as England went through a lockdown, the EY ITEM Club's Winter Forecast predicts a flat performance across the fourth quarter.
While the latest coronavirus restrictions are expected a 3-4 per cent contraction in the first two quarters of 2021, the absence of a flatline means the UK may just avoid a first double dip recession since the 1970s.
And the forecast is predicting the start of a steady economic recovery from Q2 with expected growth of five per cent in 2021, 6.5 per cent in 2022, two per cent in 2023 and 1.8 per cent in 2024.
The EY ITEM Club estimates the UK economy shrank by a record 10.1 per cent in 2020, an improvement on its December forecast of 11.6 per cent.
And the point at which the UK economy is expected to regain its pre-pandemic peak has inched forward to the third quarter of 2022, having previously been forecast for 2023 and 2024.
EY ITEM Club chief economic advisor Howard Archer said: "The UK economy has demonstrated remarkable resilience in recent months and the impact of recent lockdowns has been nowhere near what we saw in April.
"Over the course of 2020, the economy has become quicker to adapt to Covid-19 restrictions and while new restrictions may still cause disruption, lessons learned from previous lockdowns are rapidly put into place.
"The prospects for recovery are looking brighter. Once the economy has negotiated what is likely to be a challenging first quarter of this year, it will undoubtedly benefit from the vaccine rollout helping to boost consumer and business confidence."
The forecast suggests unemployment will peak at seven per cent in mid-2021 - having reached five per cent in figures released this week - before starting to fall towards the end of the year.
This would be a significant improvement on the 7.7 per cent peak expected in the autumn forecast and the nine per cent predicted last summer.
EY office manager in the South West and Wales Karen Kirkwood said: "There is positivity and opportunities for growth within key sectors in the region.
"The South West and Wales have diverse economies, with some sectors dealing well with recent challenges. The onus now will be on recovery and strategic transformation.
"Whereas recovery has the potential to be slower in some sectors, such as hospitality and leisure, any long-lasting international travel restrictions could support domestic UK tourism, which would be a potential positive for the South West and Wales."
She continued: "There is now a chance for businesses to press the reset button, look closely at how they can undertake broader strategic planning and, importantly, become more agile for the future.
"Businesses need to be prepared. Now is the time to firm up post-pandemic plans as the shape of the future economy becomes clearer."
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