John Redwood predicts a 'bounce back' for the UK economy
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Economists now expect us to beat all major rich nations this year, with 7.2 percent growth. The massive injection of confidence following the vaccine rollout is predicted to restore national income to pre-pandemic levels by next spring. Chancellor Rishi Sunak welcomed the upgraded forecast and said: “Our plan for jobs is working. It’s great to see some early signs that the UK is early signs that the UK is bouncing back from the pandemic but with debt at nearly 100 percent of [Gross Domestic Product] we must also ensure public finances remain on a sure footing.
“That’s why at the Budget in March I set out steps we will take to bring debt under control over the medium term; ensuring our future recovery is sustainable.”
The Organisation for Economic Co-operation and Development (OECD) said that countries which have been quick to vaccinate against coronavirus are witnessing their economies recover more quickly than other nations.
Officials at the OECD increased its outlook for the UK economy in its latest global analysis.
It now forecasts a healthy GDP growth of 7.2 percent this year, which is up from the 5.1 percent predicted last December.
The forecast also sees Britain’s economy growing by 5.5 percent next year – again an increase, from 4.7 percent.
Mr Sunak said analysis shows there are early signs the UK is well on the road to recovery.
He said: “The strength of the UK’s growth forecast is testament to the ongoing success of our vaccine rollout and evidence that our plan for jobs is working.”
Britain’s expected recovery this year will be ahead of the United States’ anticipated growth of 6.9 percent and is topped only by India and China.
The euro bloc lags on 4.3 percent, including Germany on 3.3 percent while France’s economy is predicted to experience a 5.8 percent improvement.
The OECD predicted: “Prospects for the world economy have brightened but the recovery is likely to remain uneven and, crucially, dependent on the effectiveness of public health measures and policy support.”
The UK upturn is being driven by consumption and is built on the successful vaccination programme, according to the organisation’s report.
The gradual lifting of lockdown rules is allowing a “solid rebound” while service sectors are “bracing for take-off”, it added.
“Consumption will bounce back sharply as hard-hit hospitality services and retail trade reopen,” the report said.
Business investment is tipped to “accelerate” in 2022 as uncertainty about the pandemic is expected to reduce.
While wealthier households where people have managed to save money during the crisis are expected to start spending.
“Higher-than-expected consumption if households run down excess savings more than assumed could boost growth considerably, while weaker than forecasted consumption and higher savings could lead to lower growth,” it said.
The OECD said trade contracted at the start of the year after the Brexit transition ended “but [it] will recover slowly”.
UK unemployment is projected to peak at 6.1 percent at the end of the year after the final stages of the furlough job retention scheme comes to an end.
But the labour market is also stabilising; employment is on the rise with an increase in job vacancies. The OECD said its projections are based on the continued success of the vaccination programme, including the rollout’s ability to deal with emerging virus strains.
It warned that supply bottlenecks might hold back consumption and increase inflation, if businesses fail to reopen or cannot attract the staff they need.
The think tank said that the worldwide recovery is at a “critical stage” and added that it might be be uneven due to different rates of success in Covid inoculation programmes globally.
It continued: “Keeping up the pace of vaccinations and responding to emerging virus mutations are key challenges going forward.”
The OECD warned that the UK could face the biggest decline in potential output growth on average among the G7 group of countries, with losses estimated to be relatively small in Japan, Canada and the United States. It says that is partly down to Brexit.
The OECD revised upwards its growth projections across the world’s major economies, to 5.8 per cent this year. It predicted the euro area is projected to grow by 4.3 per cent this year and 4.4 per cent in 2022.
The report said infections and deaths have remained at high levels in the single currency zone.
While vaccination rates have gathered pace, pressures on health systems there have “remained substantial” and forced many countries to maintain or reimpose tough coronavirus restrictions. Laurence Boone, the OECD’s chief economist, said that the group’s latest projections could give “hope” to people in countries hard-hit by the pandemic but which may soon be able to return to work and begin living normally again.
She added: “But we are at a critical stage of the recovery.
“Vaccination production and distribution have to accelerate globally and be backed by effective public health strategies.”
Ms Boone continued: “Stronger international cooperation is needed to provide low-income countries with the resources – medical and financial – required to vaccinate their populations.
“Trade in healthcare products must be allowed to flow free of restrictions.”
Responding to the positive report, Rain Newton-Smith, chief economist for the Confederation of British Industry, said: “As the country slowly but surely reopens, the economy has really taken off.
“Most sectors have seen a real uplift in activity in recent months and believe that the outlook for the summer is strong.
“But, as and when restrictions lift further, we shouldn’t lose sight of how fragile the situation will remain for some businesses.
“The Government will need to keep a watching brief of what support may need to continue.”
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