Hopes of V-shaped recovery fading
The latest economic forecasts show hopes of a V-shaped recovery are fading as they significantly downgrade the near-term outlook for the UK.
According to the EY ITEM Club’s summer forecast the UK’s GDP is now expected to contract by 11.5% this year, an increase from the 8% contraction predicted by the group in June and almost double what was anticipated expected in April’s forecast (6.5%).
However, the contraction in the second quarter of this year is expected to be a record 20%, which is 5% increase on the June figure.
The results highlight that hopes of a V-shaped recovery are fading and that recovery to Q4 2019 size is likely to take four years.
Howard Archer, chief economic advisor to the EY ITEM Club, said: “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.”
The forecast also shows that unemployment will rise to 9% in late-2020 and early-2021. With this expected to contribute to more subdued levels of consumer spending. In fact consumer spending is anticipated to fall 11.6% over the course of 2020. Although it is suggested that this will gradually recover as the labour market starts to recover next year.
Suzanne Robinson, Managing Partner for EY in Yorkshire and the Humber, commented: “Government measures have provided significant short-term support, but many businesses across Yorkshire and the Humber are waiting for more certainty over the economic outlook before making longer term investment decisions.”
She added that, “It will become increasingly important for the region’s private sector to align itself with government investment priorities to support the future development of our towns and cities across Yorkshire, if we are to successfully navigate through the pandemic and onto a path of sustained economic recovery.
“While short-term support measures announced so far have been unprecedented, more direct support is likely to be needed in the future to give consumers the assurances they need. Policies such as VAT cuts are welcome, but they aren’t a complete solution, as they don’t resolve the concerns consumers may have about going to restaurants and bars in the first place.”
Archer concluded: “The economic outlook remains highly uncertain, with significant revisions to forecasts and official data becoming the norm, but the short-term outlook is certainly gloomier than it was.