EY ITEM Club publishes upgraded economic forecast

Posted: 28/04/2021

EYITEM Spring Forecast 21The economic growth prospects for the UK in 2021 have been significantly upgraded in the EY ITEM Club’s Spring Forecast 2021. The UK economy is expected to grow by 6.8% in 2021, up from the 5% growth predicted in January.

This improved near-term outlook means the UK economy is expected to regain its pre-Covid peak in the second quarter of 2022.
The upgraded forecast strongly suggests that at the level of the overall economy, the UK will emerge with much less damage than originally feared. 

The expected first quarter performance of a 1% fall in output – rather than the 3% to 4% previously anticipated – illustrates how UK businesses and consumers have been adjusting to restrictions on activity.

Andrew Dann (pictured), EY’s Channels Islands Managing Partner, commented: “The UK economy has proven to be more resilient than seemed possible at the outset of the pandemic. Businesses and consumers have been innovative and flexible in adjusting to Covid-19 restrictions, and lessons learned over the past 12 months have helped minimise the economic impact.

“This latest forecast suggests the UK economy will emerge from the pandemic with much less long-term scarring than was originally envisaged and looks set for a strong recovery over the rest of the year and beyond. 

Andrew Dann_EY_apr21"While the outlook for the Jersey economy is not quite as certain, with a more gradual recovery predicted over the next five years, the newly strengthened prospects in the UK is positive news for Guernsey and Jersey and will give hope of a stronger recovery across the Channel Islands.” 

With a faster recovery in 2021 pulling growth forward, the EY ITEM Club now expects growth of 5% in 2022 (down from 6.5% in January), 2.1% in 2023 (up from 2%) and 1.7% in 2024 (down from 1.8%).

Following a contraction of 10.2% in 2020, the EY ITEM Club expects business investment to gain momentum over the course of 2021, rising 7.1% as companies grow more confident in the recovery.

Business investment growth of 10.5% is then expected in 2022 as confidence benefits from a more settled business environment.

The EY ITEM Club’s forecast notes that, while businesses will benefit from Budget measures designed to incentivise investment – including the 130% ‘super deduction’ relief on plant and machinery expenditure – these measures are primarily expected to bring investment forward to 2021 and 2022 rather than increase it substantially overall.

Andrew Dann added: “With two years of decent growth forecast and measures announced in the Chancellor’s Budget to support capital investment, businesses can start to plan ahead with more confidence and invest in the future. 

"Disruption and uncertainty have contributed to relatively weak levels of UK business investment in recent years, so there is some catching up to do too. Many companies may now need to think about replacing or upgrading plans and processes that have become outdated while business priorities and attention have been elsewhere.

“Crucially, rising business investment and improved productivity will also help the UK and the Channel Islands economies remain competitive internationally.”

• To read the full forecast click here

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