The EY ITEM Club Summer Forecast 2020 sees UK GDP contraction of 11.5% in 2020, a substantially deeper drop than the 8.0% fall in GDP anticipated in the EY ITEM Club early June Interim Forecast. However, the economy is not expected to return to 2019 levels until 2024.
The EY ITEM Club Summer Forecast 2020 sees a further substantial downgrading of the outlook for the UK economy in 2020 and this is only partly compensated for by some upgrading of its expectation for 2021.
Specifically, EY ITEM Club now expects GDP contraction in 2020 to be 11.5%; this compares to the 8.0% drop expected in the mid-June Interim Forecast 2020 and the 6.8% decline anticipated in the Spring Forecast 2020 back in April.
The EY ITEM forecasts that, on the assumption that the UK and EU avoid a ‘no-deal’ outcome at the end of 2020, they expect the economy to grow 6.5% in 2021. Even so, it is not expected to return to its Q4 2019 size until 2024.
Introducing the forecast, Mark Gregory, EY UK chief economist, said: “It has only been in recent weeks that the data allowing us to quantify the impact has started to come through. The data backed up early concerns: UK GDP fell 6.9% in the month of March and 20.3% in April. Unemployment rose and employers lodged claims for over nine million furloughed workers under the Coronavirus Job Retention Scheme, with another 2.5 million self-employed people receiving income support.
“In normal times, additional spending of over £30b as announced by the Chancellor on 8 July would be expected to provide a major boost to economic activity. The data since the announcement suggest more might be needed. The Chancellor is rightly concerned about minimising the drain on the UK’s resources, but a decline of 11.5% in GDP will put a strain on the economy and society across the country in any case.
“For now, concerns over an increase in the UK’s level of public debt should be secondary to the need to protect and rebuild the economy. After the Second World War, the UK reduced its debt pile primarily through growing the economy, and with borrowing remaining cheap by historic standards, the challenge now is to invest wisely. Difficult as the last few months have been, the Chancellor is now entering into the most difficult part of COVID-19 related policymaking.”