Sunday, September 26

Hopes are mounting for a speedy recovery in the UK; Tate & Lyle in Breakup Talks – Live Business | Deal

Good morning and welcome to our continued coverage of the world economy, financial markets, the eurozone and business.

Optimism is building that the UK economy is recovering strongly from the economic impact of Covid-19, and that 2021 could see rapid growth.

This morning the EY ITEM Club they have raised their growth forecasts in 2021 to a positive 6.8%, compared to the 5% forecast in January. They predict a strong recovery this year, as lockdown restrictions are eased and the deployment of Covid-19 vaccines continues.

That means the UK economy is expected to return to its pre-pandemic size in the second quarter of next year, three months earlier than before, and suffer fewer long-term economic “scars”.

Unemployment is also expected to rise less than previously feared, they say. It is now forecast to reach 5.8% in the fourth quarter of 2021, down from the 7.0% peak forecast in January, with the jobless leave scheme protected over the past year (unemployment fell to 4.9% % In the past week).

Howard Archer, chief economic advisor of the EY ITEM Club, says the UK economy has proven to be more resilient than seemed possible at the start of the pandemic.

Businesses and consumers have been innovative and flexible in adapting to COVID-19 restrictions, and while the restrictions have caused disruptions, the lessons learned over the past 12 months have helped minimize the economic impact.

In another push, Deloitte figures show consumers are also more optimistic, raising hopes for an increase in spending this spring and summer as the economy unlocks.

My colleague Richard Partington Explain:

Reflecting expectations of accelerated growth as the economy reopens, consumer confidence rose at the fastest pace in a decade in the first three months of 2021 as the roadmap out of the lockdown fueled optimism.

Every confidence measure, from the state of the economy to general well-being to personal debt levels, increased during the period, according to the Deloitte Consumer Tracker.

“The UK is poised for a sharp setback in consumer activity,” said Ian Stewart, chief economist at Deloitte. “The high levels of savings, the successful implementation of vaccination and the reduction of the blockade set the stage for an increase in spending in the coming months.”

The government’s decision to extend its leave support through the fall had also boosted confidence, limiting the rise in unemployment, Stewart said. “The eventual peak in unemployment appears to be well below what was feared, and much lower than after any recession in the last 30 years.”

Last week, the Treasury reported that city analysts have updated their GDP projections for 2021, and households are eager to spend the savings that many have accumulated during the shutdown.

The average growth forecast for this year, they said, was 5.7%, down from 4.7%, the fastest since 1988.
We’ve also seen manufacturing confidence hit its highest level since 1973, while retail sales in March rose 5.4%, an early sign that consumers were spending a lot. Businesses are reporting stronger demand, with the monthly purchasing managers index hitting the highest level since 2013 on Friday.
A resurgence of the pandemic could, of course, set things aside; last week, markets briefly sank as the crisis in India intensified. And the UK suffered a historically bad 2020, with GDP contracting by almost 10%. But if growth remains strong, then unemployment could be lower than feared, and public finances could also suffer less damage. What Paul dales from Capital economy put it last week:

Overall, we believe that an increase in retail sales in April will usher in a rapid economic recovery that may mean additional tax increases and spending cuts that most fear will not materialize.

The agenda

  • 9 a. M. BST: IFO survey on German business confidence
  • 1.30pm BST: US Durable Goods Orders March
  • 3.30pm BST: Dallas Fed Manufacturing Index for April

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