This report by EY ITEM Club explores the UK’s economic growth prospects for 2021. It forecasts a significant improvement, with the economy to grow 6.8 percent this year rather than the 5.0 percent growth suggested in January.
The improved near-term outlook means the UK economy is expected to regain its pre-COVID-19 peak in the second quarter of 2022. With a faster recovery in 2021 pulling growth forward, EY ITEM Club now expects growth of 5.0 percent in 2022 (down from 6.5 percent in January), 2.1 percent in 2023 (up from 2.0 percent) and 1.7 percent in 2024 (down from 1.8 percent).
Key findings include:
The UK economy is forecast to return to its pre-COVID-19 peak in Q2 2022, three months earlier than previously forecast.
A solid recovery is expected to develop from Q2 as restrictions are progressively eased and the COVID-19 vaccine roll-out continues.
The Bank of England has not made any further adjustments to monetary policy since enacting an additional £150bn of asset purchases last November, which took the targeted total up to £895bn.
Interest rates remain at a record low of 0.10 percent. With a decent recovery expected to get underway from Q2 2021 and inflation poised to pick up, EY suspect that the Bank of England’s ultimate next move will be to tighten monetary policy, initially through edging interest rates up.