In the recent Spending Review, Rishi Sunak was purposefully cautious, saying that the UK’s “economic emergency has only just begun”, writes David Little. So, it was fascinating to read that Ian Stewart, the Chief Economist at Deloitte, was effectively contradicting the Chancellor by proposing that the economic indicators suggest 2021 will see a very strong return to growth.
Deloitte’s economist seems supported by the Office of Budget Responsibility (OBR), which forecasts the economy will expand by 5.5% in 2021 and 6.6% in 2022. The OBR believes this will see the UK’s economy return to the pre-pandemic level of GDP in two years. By comparison, it took five years to recover the ground lost following the global financial crisis, as Ian Stewart explains in an interview here.
As we have written on these pages, here and here, the government’s intervention and support has succeeded in mitigating the impact of potential insolvencies and mass unemployment. Nonetheless, unemployment is expected to rise in 2021.
Ian Stewart further comments that “Lower interest rates mean that the cost of servicing [the Government’s] debt has declined and next year is likely to hit a new post-war low,”.
Vaccines could turbocharge the recovery
“None of this is to say that we are out of the woods,” he continues. “Even so, the fact this recession was caused by a virus offers hope about the coming recovery. A successful vaccine deployment would halt the recession in its tracks.”
There is of course still one big unknown: Brexit.
According to OBR estimates, a no deal Brexit could knock 2% off growth next year. “But, equally, a successful and swift deployment of vaccines could turbocharge the recovery,” Stewart says.
“The government has done a pretty good job of trying to preserve the fabric of the economy for the recovery, but there are some fine judgments to be made about how far you can extend that support, and some sectors and jobs will simply cease to be viable in the long term.”
“In this kind of economy where human capital matters more, and physical capital is less important, investments in skills is a really crucial area,” he concludes.
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The above is accurate as at 08 December 2020. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.