Output In The UK Primed For Quick Recovery To Pre-Pandemic Levels

[Liz Seyi]

In news that is likely to be heartening to many of those making use of the services of bookkeepers in Devon and Somerset, the Confederation of British Industry (CBI) has forecast that UK output will return to its pre-COVID-19 level by the end of this year.

This prediction would be a full year earlier than had previously been expected. The membership organisation said that it anticipated gross domestic product (GDP) would grow by 8.2% in 2021, and expand by an additional 6.1% in 2022, following a 9.9% drop last year.

If this does prove to be the case, the recovery this year will have been twice as quick as the Office for Budgetary Responsibility (OBR) predicted as recently as March, and much stronger than the two-year period the Bank of England said it expected in its monetary policy report in May.

Even the delay to “freedom day” may do little to hamper growth

With Prime Minister Boris Johnson having recently announced that the previously expected lifting of all remaining coronavirus restrictions would be put back by another four weeks, CBI economist Alpesh Paleja admitted that such news could feel like a “hammer blow” to the businesses affected.

However, he said even this development would have little impact on the overall economic outlook, given that most firms were now open in some form. He did, though, suggest that the government should think about providing targeted support to sectors that were still prevented from opening fully, in the shape of business rates relief or help channelled via local authorities.

Consumer spending likely to be a key driver of the bounce-back

While the business lobby group signalled its expectation that half of this year’s GDP increase would be attributable to government spending to deal with the pandemic, it also said consumer expenditure would be “the linchpin of the recovery”, driving growth of 70% in 2022.

A real-terms rise in household incomes is also anticipated, with the CBI predicting that unemployment will peak at 5.5% in 2021’s third quarter. This would be only 0.8% above the current level, and would represent a both lower and earlier peak than had once been feared.

As for consumer price inflation – the recent acceleration of which has caused concern in some circles – the group suggested that this would increase far above the Bank of England’s 2% target in the final three months of 2021, but would then steadily decline. This, the organisation suggested, would mean inflation of 2% on average over the course of next year.

CBI director-general Tony Danker commented on the figures: “There are really positive signs about the economic recovery ahead this year and next. The imperative must now be to seize the moment to channel this investment into the big drivers of long-term UK prosperity.”

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