UK’s post-pandemic recovery could take 18 months longer than expected, says EY

The EY ITEM Club Summer Forecast has significantly downgraded the near-term economic outlook for the UK with GDP now expected to contract by 11.5 per cent over the course of 2020.

This compares to the 8.0 per cent contraction predicted last month in the EY ITEM Club’s Interim forecast, and almost double the 6.8 per cent contraction expected in April’s Spring Forecast.

A spokesman said: “With hopes of a V-shaped recovery fading, the UK economy is now not expected to match its Q4 2019 size until late-2024 – much later than the early-2023 prediction from the June forecast.

“Additionally, the EY ITEM Club now expects the Q2 GDP contraction to come in at a record 20 per cent– a sizeable downgrade from the 15 per cent contraction predicted last month.”

More positively, growth prospects for 2021 have been raised slightly, with the economy now forecast to grow 6.5 per cent over the year, up from the 5.6 per cent predicted in June’s forecast, and up from 4.5 per cent in April’s forecast.

The EY ITEM Club expects the economy to return to growth in Q3 2020 with expansion around 12 per cent quarter-on-quarter (q/q).

The downgrades to the EY ITEM Club forecast for 2020 have been largely driven by weaker-than-expected growth of just 1.8 per cent in May, with the services sector particularly hampered by COVID-19 even as the restrictions were eased.

Howard Archer, chief economic advisor to the EY ITEM Club, comments: “Even though lockdown restrictions are easing, consumer caution has been much more pronounced than expected. 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.”

Suzanne Robinson, the managing partner for EY in Yorkshire said: “Government measures have provided significant short-term support, but many businesses across Yorkshire are waiting for more certainty over the economic outlook before making longer term investment decisions.

She added: “Although progress has been made with devolution deals for South and West Yorkshire, recent times have only highlighted the need for increased autonomy right across the North.

“It’s vital that our regions and communities have the necessary powers and the right blend of public and private sector investment. The Government has set out a vision around infrastructure, skills and innovation and I welcome the recent announcement about the Transpennine rail upgrade, but most of the detail isn’t yet available.”

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