The UK economy is likely to avoid a double-dip recession with growth this year put at 5% , according to the influential EY ITEM Club.
It says while the latest Covid-19 restrictions across the UK are expected to cause a 3% to 4% contraction in the first quarter (Q1) of 2021, the absence of a contraction in Q4 2020 – with flat growth anticipated – means th economy “may just” avoid its first double-dip recession since the 1970s.
A recession is defined by two consecutive quarters of economic contraction, which was seen in the aftermath of the outbreak of the pandemic last year. A double-dip recession for the UK economy would be seen if, following a short economic upturn, two new consecutive quarters of contraction were recorded.
The EY ITEM Club said that with a vaccine roll-out under way and a free trade agreement on goods with the EU having been secured, it has put the UK in position for a steady economic recovery from Q2 2021 onwards.
Its latest forecast predicts growth of 5% in 2021, 6.5% in 2022, 2% in 2023 and 1.8% in 2024.
It also estimates that the UK economy shrank by a record 10.1% in 2020, an improvement on its December forecast of an 11.6% contraction.
The point at which the UK economy is expected to regain its pre-Covid-19 peak is now forecast to happen in Q3 2022 – an improvement from the 2023 and 2024 dates predicted in earlier forecasts.
Howard Archer, chief economic advisor to the EY ITEM Club, said: “The UK economy has demonstrated remarkable resilience in recent months and the impact of recent lockdowns has been nowhere near what we saw in April. Over the course of 2020, the economy has become quicker to adapt to new Covid-19 restrictions and while new restrictions may still cause disruption, lessons learned from previous lockdowns are rapidly put into place.
“The prospects for recovery are looking brighter. Once the economy has negotiated what is likely to be a challenging first quarter of this year, it will undoubtedly benefit from the vaccine roll-out helping to boost consumer and business confidence. The combination of vaccines, a UK-EU trade deal and previous lockdown experience means there’s much less uncertainty out there. Excluding the first quarter, the UK is looking at two years of strong growth.”
The club is also forecasting that unemployment will peak at 7% in the middle of the year, before starting to fall towards the end of the year