Renewed household and government spending will drive the UK’s economic recovery in 2021 – but a more cautious revival in business investment means it will be the end of 2022 before GDP returns to pre-pandemic levels.
According to the CBI’s latest economic forecast, the huge fall in GDP triggered by Covid-19 restrictions in March and April – and a smaller dip over the winter following November’s second lockdown – means that an economic recovery still has some way to go.
However, steady growth in household incomes and spending will be a catalyst for revival from mid-2021 onwards, as the prevalence of the Covid-19 fades, a pandemic-related spike in unemployment eases and earnings recover.
The CBI is forecasting 6% growth in GDP over 2021, and 5.2% in 2022.
A significant increase in government spending will also play a key role, following announcements since the summer around more spending on tackling the virus. As a result, government consumption rises by 12.7% in 2021.
Business investment will be slower to return, however. A significant downturn (-17.5%) in 2020 will be followed by a further small reduction in 2021 (-0.6%), before growing by 9.3% in 2022 – a timely return, as government spending will fall again in 2022.
Tony Danker, CBI Director-General, said:
“Covid-19 has left deep scars on the economy, but this forecast does offer grounds for optimism. The road to recovery will be long, but the trajectory is positive, and we must do all we can to hasten the journey.
“We simply must find new ways to get businesses investing at the start of 2021 if we are to fast-forward the recovery.
“We’ve had great news on vaccines this week, but if we are to be masters of our own destiny then we must act decisively to rebuild a better economy.
“British business is like a coiled spring ready to release ambition and investment. They just need a chance.”
