By Jonathan Cable
LONDON (Reuters) – Britain’s economy will grow rapidly this quarter as additional coronavirus restrictions are lifted and new pent-up demand emerges, according to a Reuters poll, but growth is threatened by new variants of COVID-19.
The country has suffered the highest death toll in Europe from the pandemic, but a rapid rollout of the vaccine has allowed the government to lift many of the lockdown restrictions, and more are expected to be lifted on Monday.
Gross domestic product will grow 2.5% this quarter, according to the July 12-15 poll, slightly better than the 2.4% forecast last month. But medians showed the pace is expected to slow to 1.4% next quarter and then to 0.9% at the start of 2022, unchanged from last month’s forecast.
“The UK data so far looks promising in two respects. First, the vaccines appear to have significantly reduced the health risks from the virus,” said Holger Schmieding, chief economist at Berenberg.
“Second, the UK GDP estimate for May shows activity has rebounded with the easing of restrictions.”
GDP grew 0.8% per month in May, much faster than its typical pre-pandemic rate, but down from the 2.0% increase in April, according to official data released in May. last week.
On an annual basis, growth has been set at 6.7% this year – far stronger than the 6.2% forecast last month – and unchanged at 5.2% in 2022.
Chart: Reuters poll charts on UK inflation, monetary policy and economic growth outlook – https://fingfx.thomsonreuters.com/gfx/polling/nmopaxggbva/UK%20graphics.PNG
But when asked what was the biggest threat to these dynamic numbers, more than 70% of those polled said the spread of new variants of COVID-19.
“COVID-19 cases are increasing rapidly again and show little sign of slowing down. With the number of infections doubling every 8 to 9 days, daily cases above 100,000 are entirely possible in the coming weeks.” , said James Smith, economist at ING.
“The increasing prevalence of COVID-19 also means higher rates of contact tracing and self-isolation. These risks amplify the current shortage of workers in some of the consumer service industries, but could also see consumers reducing social contact to mitigate the risk of having to stay home for 10 days. “
Like its peers, Britain has faced strong inflationary pressures, with supply chains disrupted by the pandemic and increased demand causing prices to rise.
Inflation is expected to average 2.2% this quarter and peak at 2.7% next quarter. However, this recovery will likely be transient and is due to the low base induced by last year’s pandemic.
So while these forecasts are well above the Bank of England’s 2% inflation target, the central bank is unlikely to increase borrowing costs from their all-time low of 0.10%. until 2023.
None of the 82 economists surveyed expected a change when the Bank announces the next policy review on August 5.
Chart: Reuters UK Economic Outlook Charts – https://fingfx.thomsonreuters.com/gfx/polling/jznvnyrropl/BoE%20final%20-%20July%202021.PNG
BoE interest rate regulator Michael Saunders said on Thursday that the central bank may decide to end its current government bond buying program earlier due to an unexpected rise in the dollar. inflation, a day after another senior BoE official said the time to act might be approaching.
“There is, however, a risk that the strength of inflation will prove to be more persistent, which could put more pressure on the BoE to tighten its policy,” said Chris Hare, senior economist at HSBC.
“There are real supply-demand imbalances that have become apparent during the economic reopening, which we believe could persist or even deepen in the short term.”
(Report by Jonathan Cable; survey by Mumal Rathore, Devayani Sathyan and Vijayalakshmi Srinivasan; edited by Hugh Lawson)