Britain is set for its sharpest economic growth since 1988 this year as the easing of Covid-19 restrictions encourages consumers to start spending, according to a monthly survey of independent economists by the Treasury.
City analysts have upgraded their GDP projections for 2021 amid signs that households are itching to get out and spend the “accidental” savings they have built up during lockdown.
The average of growth forecasts collected by the Treasury this month was 5.7 per cent, a big jump from the average of 4.7 per cent in March. If the 19 City and independent economists are right, growth this year will be the fastest in 33 years. JP Morgan, Oxford Economics and Bloomberg Economics expect an even swifter recovery, with growth of 7 per cent or more, which would be the quickest economic advance in the postwar era.
Deutsche Bank said its real-time data showed that the recovery has got off to “a roaring start” since restrictions started to ease, beginning with the reopening of schools on March 8.
Sanjay Raja, a senior economist at Deutsche, pointed to a surge in restaurant bookings and high footfall in shopping centres and high streets. “We expect a sizeable jump in output, [with] second-quarter GDP expanding by over 5 per cent,” he said.
The economy is expected to shrink by about 1.5 per cent in the first quarter as a result of lockdown.
Jefferies, another investment bank compiling real-time data, has also seen a big increase in activity in the past week. David Owen, chief European economist, said that this was “consistent with our view that GDP growth in 2021 could be 7 per cent, or more”.
Optimism has been rebounding thanks to the vaccine rollout, falling infection rates, the reopening of shops, outdoor hospitality and gyms on April 12, and mounting evidence that businesses and households have been able to adapt to lockdowns. Pizza Express said yesterday it was recruiting 1,000 staff in anticipation of a rush when indoor dining is allowed from May 17.
Economists are holding out for a “Roaring Twenties” revival as households spend some of the £150 billion of excess savings made during lockdown when the economy fully reopens. So far, the signs have been encouraging. Raja said the data showed that “consumer spending is on the rise”, with restaurant and pub bookings above levels seen after the first lockdown last year.
Allan Monks, UK economist at JP Morgan, expects a “consumption boom”. He is the most optimistic of the City forecasters, projecting 7.4 per cent growth this year.
The Treasury’s analysis of independent forecasts, collected between April 1 and April 16, showed the economy firing on all cylinders, with household consumption growing at over 5 per cent this year and investment expanding at 7.4 per cent. The outlook for employment has improved, too. Joblessness is expected to peak at 6.2 per cent this year, compared with 6.4 per cent expected last month. At present there are 1.67 million out of work and the unemployment rate is 4.9 per cent.