The UK’s economy is expected to grow 4% in 2021 and regain its pre-pandemic level in the second quarter of next year, the Office for Budget Responsibility said in its economic and fiscal outlook.
In its 3 March outlook, the OBR said the combination of the rapid rollout of effective vaccines and the easing of restrictions “should permit a rebound in consumption and output through this year, partially supported by the release of extra savings built up by households during the pandemic”.
The independent body had initially predicted in November 2020 that the economy would only recover at the beginning of 2023.
It estimated that the economy will grow by 7.3% in 2022, 1.7% in 2023, 1.6% in 2024 and 1.7% in 2025, the Chancellor announced during his Budget statement in the House of Commons. In the UK, GDP fell 9.9% in 2020 – the largest decline in the G7 countries.
The OBR also estimated that unemployment will rise by a further 500,000 by the end of this year to a peak of 6.5%. This is also not as high as the forecast of 7.5% laid out in the November forecast, “thanks partly to the latest extension of the furlough scheme”.
On 2 March, the Treasury announced that it would extend the job retention scheme – whereby the government pays 80% of an employee’s salary – until September. As of 15 February, the programme has supported 11.2 million jobs across the UK.
The government’s borrowing is expected to fall from a peacetime high of £355bn in 2020-21 to £234bn in 2021-22, a total still high than the 2009-10 peak at the height of the financial crisis, the OBR said.
“Uncertainty around the economic outlook remains considerable, with the course of the pandemic still the greatest single risk,” the OBR’s forecast read. “A quicker rollout of vaccines with greater effectiveness in reducing infection and illness, the development of new therapies and treatments, or a faster rundown in household savings built up during the pandemic could deliver a swifter economic recovery and less medium-term scarring.
“Against that, setbacks in the rollout of the vaccines, the emergence of new vaccine-resistant variants, or reduced compliance with residual public health restrictions could force governments back into periodic lockdowns, with more adverse consequences for the economy in the short and medium term,” it added.
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