The Bank of England has just raised its growth forecast following its Monetary Policy Report on Thursday. Their previous forecast of 5% now looks too pessimistic, writes David Little, a Partner in our Corporate and Commercial team.
Goldman Sachs has predicted UK growth of 7.8% for this year – the fastest post-war rate of growth. It would see Britain leave the US and the eurozone in its wake.
According to This is Money in its last update in February the Bank pencilled in a 5% rise in output this year following the 9.8% decline in 2020. Unemployment was also predicted to rise to 7.8%. But with the outlook improving, this looks too pessimistic.
Howard Archer, chief economic adviser to forecasting group the EY Item Club, says: “The economy looks to have started the second quarter very much on the front foot, benefiting from easing of restrictions and the continued vaccine rollout. The further near-term support to the economy provided in March’s Budget also seems to have lifted confidence.
“Significantly, the labour market is showing resilience and survey evidence points to more confident businesses being prepared to take on workers.”
The Institute of Economic Affairs (IEA) believes no ’emergency measures’ are needed to help pay off the £2trillion National Debt. The respected think-tank said tax increases would be ‘futile’, and instead advised Treasury officials to focus on controlling spending and introducing measures to boost growth.
After analysing other periods when the National Debt shot up – during the two World Wars and the Revolutionary Napoleonic Wars of the 18th-19th centuries – the IEA said: “Large-scale debt is far from unknown. And it would be misguided and futile to jump to tax-raising measures.
“The debt can be coped with and the best way of doing that is to encourage economic growth… by removing unnecessary regulation and simplifying taxes.”
This is Money reported that though the Bank is unlikely to raise interest rates just yet, it is expected to slow the pace of quantitative easing at Thursday’s Monetary Policy Committee meeting.
Warren Buffett warns about inflation
Over in the US, in his annual address to Berkshire Hathaway shareholders last week, the legendary investment manager said he was surprised by the ‘red hot’ US economic rebound and warned of inflationary pressures that ‘’won’t stop’.
“We are seeing very substantial inflation. It’s very interesting. We are raising prices. People are raising prices to us and it’s being accepted.
“We [own] nine homebuilders, in addition to our manufacturing and housing operation, which is the largest in the country. So we really do a lot of housing. The costs are just up, up, up. Steel costs, you know, just every day they’re going up.”
Reported by CNBC here US Federal Reserve Chairman, Jerome Powell, reiterated last week that he expects inflation to show a temporary move higher then settle back to around the central bank’s 2% target. The Fed has resolved not to raise interest rates until the economy sees full, inclusive employment, so long as inflation doesn’t run too far above the goal.
For a full recap of Buffett’s comments at the annual meeting, see here.
The above is accurate as at 04 June 2021. 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.