The UK may have to wait until 2024 for its economy to fully recover, according to a new report, which has further dashed hopes of a quick ‘V-shaped’ economic recovery as previously predicted by the Bank of England.
The report from economic forecasters EY Item Club found that it would take four years for economic output to return to 2019 levels. EY predicted that the economy between April and June will have shrunk by 20 per cent, worse than the 15 per cent it had initially predicted.
Overall output is expected to shrink by more than 11 per cent by the end of this year, much worse than expected and will constitute the worst annual performance in 300 years. The economic forecaster estimates that unemployment will double by the end of the year to 9 per cent.
The main factor fueling this bleak economic outlook – and longer than expected recovery – is the fact that consumer demand is picking up much more slowly than previously anticipated.
“Even though lockdown restrictions are easing, consumer caution has been much more pronounced than expected,” said EY Item Club economist Howard Archer. “We believe that consumer confidence is one of three key factors likely to weigh on the UK economy over the rest of the year, alongside the impact of rising unemployment and low levels of business investment.
“The UK economy may be past its low point but it is looking increasingly likely that the climb back is going to be a lot longer than expected. May’s growth undershot even the lowest forecasts. By the middle of this year, the economy was a fifth smaller than it was at the start. Such a fall creates more room for rapid growth later, but it will be from a much lower base.”
A separate report from the Resolution Foundation last week found that British households have suffered the worst drop in their incomes since the 1970s oil crisis nearly half a century ago, with the average household seeing a 4.5 per cent decrease in their incomes in the month to May.
The latest grim economic forecasts come after earlier this month new figures showed that the number of people on UK payrolls had shrunk by an astonishing 640,000 during lockdown.
Meanwhile, the number of people on job-related benefits such as Universal Credit has skyrocketed to a total of 2.6m.
Unite assistant general secretary Steve Turner said the latest economic forecasts show once again that the government must step up to the plate to avert a drawn-out post-pandemic crisis.
“Unite has long been saying that even if the threat of the virus begins to subside, it will take far longer for demand to return to pre-pandemic levels,” he said. “Today’s new economic forecast from EY again confirms this. That’s why the government’s jobs retention scheme must be extended and adapted far beyond the end of October, when the scheme is set to abruptly end.
“We can take a leaf out of the books of other countries such as Germany and France and support short-time working, job shares and job rotation so that we can buy time to enable consumer demand and confidence to pick up again.”
“Our key industries, from aviation to aerospace to automotive, hospitality and many more are hanging in the balance – if the government fails to take action with sector specific support packages, we will be facing a full-blown depression that will leave permanent scars on people’s working lives and the wider economy, and will take years to fully overcome.”
By Hajera Blagg