British businesses predict best year since 1949 – but economy faces uneven recovery

·3 min read
Pedestrians, some wearing face coverings due to Covid-19, walk past shops on Oxford Street in central London on June 7, 2021. - The Delta variant of the coronavirus, first discovered in India, is estimated to be 40 percent more transmissible than the Alpha variant that caused the last wave of infections in the UK, Britain's health minister said Sunday. (Photo by Niklas HALLE'N / AFP) (Photo by NIKLAS HALLE'N/AFP via Getty Images)
The UK economy is expected to return to its pre-pandemic level in Q1 2022. Photo: Getty Images

The UK could see GDP growth of 6.8% in 2021 if lockdown restrictions continue to ease and boost consumer spending, which would make this year the strongest one the country has seen since official records began in 1949.

But the British Chambers of Commerce (BCC), which made the prediction, warned of an “uneven recovery” as the pandemic continues to take a toll on employment and sectors such as hospitality.

The BCC forecast assumes that the UK government’s roadmap out of lockdown restrictions will proceed as planned. In such a scenario, it predicts UK GDP growth will be strongest during 2021’s second and third quarters.

By the first quarter of 2022, the UK economy is expected to return to its pre-pandemic level, with growth of 5.1% projected.

Consumer spending is expected to be the main driver for this year’s economic rebound.

“The release of pent-up demand, if restrictions ease as currently planned, and the rapid vaccine rollout is forecast to drive the strongest growth in spending since 1988, as consumers spend some of their ‘unanticipated’ savings accumulated during lockdowns,” the report said.

Business investment is forecast to rebound, driven by the boost from the reopening of the economy and the introduction of the super-deduction incentive in the government’s latest budget.

The incentive means that until the end of March 2023 companies can claim 130% capital allowances on qualifying plant and machinery investments.

Read more: Economists see surging growth as UK reopening boom gathers pace

But the BCC said business investment is projected to slow sharply in 2023 as the super-deduction incentive ends and corporation tax increases.

Hannah Essex, BCC co-executive director, said: “These predictions rely upon the government hitting its target date for the full re-opening of the economy.”

“If there are bumps in the road, the government must be prepared to extend existing support until all sectors are able to fully trade again." 

Meanwhile, output from catering and hospitality, some of the sectors hardest hit by the pandemic, are forecast to only return to pre-pandemic levels in the third quarter of 2023.

And a decline in exports is predicted due to post-Brexit disruption and the weak near-term outlook for the euro area expected to weigh on EU demand for UK goods and services.

“Beyond the strong short-term outlook, notable economic scarring from the pandemic is projected to weigh on economic activity once government support winds down and drive an uneven recovery across different sectors and groups of people,” said Suren Thiru, head of economics at the BCC.

“A more significant surge in inflation would weigh on a consumer-led revival by eroding their spending power," she said, adding that "the squeeze on activity and the damage to confidence from a marked delay to the full lifting of restrictions or further restrictions to combat COVID variants would materially slow the recovery".

In May monthly private sector forecasts compiled by the Treasury showed a big upgrade in forecasts for the UK economy, with analysts predicting the best year for growth since the Second World War.

Watch: What is a V-shaped economic recovery?

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