United Kingdom – 2021-2022 Outlook: back to reality
- Summary of our scenario
- Latest economic trends
- The basis of our scenario
- Focus : summary of Coronavirus business loan schemes
We expect growth to slow sharply towards the end of the year as pandemic support unwinds. A key feature of the demand outlook beyond the initial post-pandemic rebound is the fact that a number of key government support measures are set to expire on 30 September, including the furlough scheme, the enhanced universal credit (GBP20 per week) and reduced VAT on food and accommodation services. This will likely result in a higher unemployment rate in Q421 (to 5.5% in our forecasts). Consumer confidence will likely take a hit, additionally amplified by strong inflation in the near term. We expect this to be followed by a sharp deceleration in household consumption at the turn of the year.
Key factor for the BoE will be the evolution of the labour market when government' supports wind down in H221. The BoE has made it clear that it does not intend to tighten monetary policy "at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably". The current signs of labour market overheating are likely to disappear or at least diminish when the fiscal supports wind down in H221. Redundancies among furloughed people are expected to rise over the summer, many of whom are in the food & accommodation, wholesale and retail sector, as employers are asked to contribute from July to the payment of salaries.Slavena NAZAROVA, Economist