Hopes build for rapid UK recovery; Tate & Lyle in break-up talks – business live | Business
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Optimism is building that the UK economy is rebounding strongly from the economic shock of Covid-19, and that 2021 could see rapid growth.
This morning, the EY ITEM Club have hiked their forecasts for growth in 2021 to a positively sizzling 6.8%, up from 5% forecast in January. They predict a solid recovery this year, as lockdown restrictions are eased and the rollout of Covid-19 vaccines continues.
That means the UK economy is expected to return to its pre-pandemic size in the second quarter of next year – three months earlier than before – and suffer less long-term economic ‘scarring’.
Unemployment is also expectect to rise less than feared, they say. It’s now forecast it reach 5.8% in the fourth quarter of 2021 – down from the 7.0% peak predicted in January, with the furlough scheme having protected jobs over the last year (unemployment fell to 4.9% last week).
Howard Archer, chief economic advisor to the EY ITEM Club, says the UK economy has proven to be more resilient than seemed possible at the outset of the pandemic.
Businesses and consumers have been innovative and flexible in adjusting to COVID-19 restrictions and, while restrictions have caused disruption, lessons learned over the last 12 months have helped minimise the economic impact.
In another boost, figures from Deloitte show that consumers are also more upbeat, raising hopes for a jump in spending this spring and summer as the economy unlocks.
My colleague Richard Partington explains:
Reflecting expectations of accelerated growth as the economy reopens, consumer confidence increased at the fastest rate in a decade in the first three months of 2021, as the roadmap out of lockdown fuelled optimism.
Every measure of confidence – from the state of the economy, to general wellbeing and personal debt levels – increased over the period, according to the Deloitte Consumer Tracker.
“The UK is primed for a sharp snapback in consumer activity,” said Ian Stewart, the chief economist at Deloitte. “High levels of saving, the successful vaccination rollout and the easing of the lockdown set the stage for a surge in spending over the coming months.”
The government’s decision to extend its furlough support through to the autumn had also boosted sentiment, limiting the rise in unemployment, Stewart said. “The eventual peak in unemployment looks set to be far lower than had been feared, and far lower than following any downturn in the last 30 years.”
Last week, the Treasury reported that City analysts have upgraded their GDP projections for 2021, with households eager to spend the savings which many have accrued during lockdown.
The average forecast for growth this year, they said, was 5.7%, up from 4.7% – the fastest since 1988.
We’ve also seen manufacturing confidence hit its highest level since 1973, while retail sales in March leapt 5.4% – in an early sign that consumers were spending strongly. Firms are reporting stronger demand, with the monthly purchasing managers index hitting the highest level since 2013 on Friday.
A resurgence of the pandemic could, of course, knock things sideways; last week, the markets took a brief dive as the crisis in India escalated. And the UK did suffer a historically bad 2020, with GDP contracting almost 10%.
But if growth does hold firm, then unemployment could peak lower than feared, and the public finances could suffer less damage too. As Paul Dales of Capital Economics put it last week:
Overall, we think a surge in retail sales in April will mark the start of a rapid economic recovery that may mean the extra tax hikes and spending cuts that most fear may not materialise.
- 9am BST: IFO survey of German business confidence
- 1.30pm BST: US durable goods orders for March
- 3.30pm BST: Dallas Fed manufacturing index for April