Bank of England Governor Andrew Bailey has hailed the fastest recovery in modern times as Britain surges back from the worst recession in over three centuries.
The Bank is predicting a 7.25pc jump in growth this year, well ahead of the 5pc it forecast three months ago and the biggest rise since the height of the war effort in 1941.
Mr Bailey said: “I don't think we've had a bounceback quite of this nature, certainly in modern times,” Mr Bailey said.
The success of the UK's vaccination programme, the extension of the furlough scheme until September and Budget measures such as the Chancellor’s “super-deduction” tax break on investment have limited the economic scarring from Covid, the Bank added.
Threadneedle Street also predicted that households will burn through some 10pc of the £200bn saved up during lockdown, twice as big a share as it forecast three months ago, in a spending spree which will further power output.
It came as the Bank inched back towards more normal monetary policy as the crisis ebbs away. It held interest rates at their current record low of 0.1pc and kept the size of its money-printing programme unchanged at £895bn.
However, hawkish chief economist Andy Haldane split from the majority with a vote to curb stimulus at £845bn.
He argued that there is "now clear evidence that the economy was growing rapidly, with both household and company spending surprising significantly and persistently to the upside".
Unemployment is predicted to peak at 5.5pc, much lower than the 7.75pc forecast in February, as far more of the 3.3m workers still on furlough are shielded from dole queues. Unemployment should peak at less than 2m, compared with fears earlier in the pandemic that 3.5m could be out of work.
The Bank’s more upbeat forecasts also reflected the earlier lifting of Covid-19 restrictions as the UK prepares for the next stage of the Government reopening roadmap on May 17. The economy will be back to its pre-Covid peak by the end of the year, it said.
The forecasts come with official figures set to confirm next week that the third lockdown inflicted much less damage than the 4pc blow previously feared by the Bank.
Rate-setters on the Monetary Policy Committee also cut the pace of their bond-buying programme, and endorsed market predictions of a first interest rate rise towards the end of 2022 in their latest inflation forecasts.
Mr Bailey said the Bank would “watch very carefully” the impact of factors such as microchip shortages as the economy reopens. It expects inflation to temporarily hit 2.5pc by the end of the year, before returning to the 2pc target.
Simon Wells, chief European economist at HSBC, said: “With the on-target inflation forecasts, the MPC is essentially agreeing that modest rate rises will be necessary to keep inflation down to 2pc.”
The bullish forecasts came amid signs that businesses are benefiting from a reopening boom, as customers embrace the chance to spend after months of lockdown.
Private sector activity surged last month at the fastest pace since 2013, according to IHS Markit’s closely watched purchasing managers’ index.
The index for the services sector, which has borne the brunt of the lockdown due to its reliance on face to face contact, jumped to 61.0 in April, its highest in seven and a half years. Any score of above 50 indicates growth.
Tim Moore, economics director at IHS Markit, said: “April data illustrates that a surge of pent up demand has started to flow through the UK economy following the loosening of pandemic restrictions."