Stronger recovery predicted

Extract from Redwood Financial’s Economic Review April 2021

The UK economy returned to growth in February and survey evidence suggests a strong recovery is imminent, as lockdown restrictions ease and the vaccine rollout continues at pace.

Data published by the Office for National Statistics (ONS) showed the economy grew by 0.4% in February, as businesses prepared for the lifting of the third national lockdown. Commenting on the figures, an ONS spokesperson said, “The economy showed some improvement in February after the large falls seen at the start of the year, but remains around 8% below its pre-pandemic level.”

While February’s growth rate was below market expectations and the first quarter as a whole still looks on course for a modest contraction, the data does point to an improving situation. Survey evidence suggests economic activity has recovered further in recent months.

April’s IHS Markit/CIPS flash composite Purchasing Managers’ Index, for instance, rose to 60.0 in April, up from 56.4 in March. This was the highest reading since November 2013 and suggests the economy is poised for a rapid recovery.

As a result of the improving outlook, a number of organisations have recently upgraded their UK economic forecasts. The EY ITEM Club’s new projections, for example, predict growth of 6.8% in 2021, a significant increase from its previous figure of 5.0%. The group’s Chief Economic Adviser, Dr Howard Archer, said the forecast implies the economy will “emerge from the pandemic with much less longterm ‘scarring’ than was originally envisaged and looks set for a strong recovery over the rest of the year and beyond.”

Revised forecasts released by Goldman Sachs suggest the UK will now see faster growth than the US this year. In a note to clients, the bank said it expects the UK economy to expand by a “striking” 7.8% in 2021, compared to US growth of 7.2%.

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