Britain is set to witness economic growth this 2021, but according to forecasts compiled by the Treasury, the said growth’s effects won’t take effect just yet.
Private-sector economists expect the UK GDP to increase by at least 5.4% in 2021. If Britain hits the projected number, that will make it the most significant leap forward for the economy in modern history.
The Bank of England has a different project, stating that the economy will jump to 7.25% in 2021.
Britain’s Economic Growth
Forecasters believe that the distribution of COVID-19 vaccines will allow people to slowly go back to their routine, which could help the economy. That will enable GDP to bounce back faster than expected.
However, for most people, it will not feel like a banner year. This is because unemployment is expected to keep rising, and house prices are also likely to fall.
The apparent contradiction is in the context. The size of its economic collapse will mostly drive the bumper growth of Britain in 2021 in 2020.
George Buckley, Nomura’s chief UK and Eurozone economist, said:
“We’ve actually performed the worst amongst all European economies, and that includes Spain as well. The ones that stand out like a sore thumb are the UK and Spain.”
Britain’s economy is forecast to decrease by around 11% in 2020 compared to Germany, whose GDP is on track to fall by roughly 5.5%, or France, where the economy is projected to be around 9.5%.
Buckley said, “the UK has a huge service sector, it’s worth about 80% of GDP. That means that we’ve probably taken more of a bigger hit because services have been more impacted than manufacturing.”
Britain has fallen a massive hole than other countries. It gives the citizens more wall to climb to be able to get back to ground level. While the numbers on both the way down and up will be more massive, the result will be the same.
“If you have a bigger deeper fall in one year, you’re probably going to get a much quicker rise the next,” said Buckley.
“That’s how it works,” the economist concludes.
Instead of comparing national growth rates, a more vital measure is how long it takes a country to get back to pre-pandemic levels. On this point, the opinion of economists is divided. The Bank of England also expects the UK to reach the same economy they enjoyed in 2019 by late 2021, but the Officer for Budget Responsibility thinks it won’t happen until 2022.
Nomura is more bearish, forecasting a return to pre-pandemic levels only by 2023. “We think it’s going to be prolonged recovery, a recovery nonetheless but a prolonged one,” Buckley said.
After the struggle of 2020, economists are less sure that their forecasts will happen. Recovery in 2021 depends on a smooth roll of the vaccine and the hope that the pandemic does not take any more turns. The recent news of a more transmissible COVID-19 mutation makes this prediction far from certain.
“The best of forecasts could end up being scuppered by something that is ostensibly unpredictable,” Buckley said.