As countries around the world began to tentatively reopen businesses and lift Covid-19 restrictions, there are strong signs of growth and recovery. However, this has been tempered with concerns around inflation and long-term growth prospects.
In May, the Bank of England Governor Andrew Bailey increased the UK’s growth forecast to 7.25% for this year. While good news, he still noted that it means the UK has lost two years of output growth due to the pandemic. The Bank of England has also lowered its unemployment forecast. Thanks to the furlough scheme, it now expects unemployment to peak at below 5.5% in the third quarter of this year. This compares to its earlier forecast of 7.75%.
Economic thinktank NIESR has also increased GDP expectations, but warned of the long-term impact of Covid-19 on the economy. According to the organisation, the combined effects of Covid-19 and Brexit mean the UK will lose £700 billion in output over the next five years. Despite positive signs, it predicts GDP will be almost 4% lower in 2025 than it would have been without the pandemic.
The latest data suggests sectors across the UK are beginning to recover:
- Markit’s PMI (Purchasing Manager’s Index) for manufacturing data increased to 60.9 in April, up from 58.9 in March. Any reading over 50 indicates growth and the latest figures show activity is accelerating. It’s the highest reading since 1994, but the rise is partly due to longer delivery times as factories struggle to get hold of raw materials and parts.
- Within the construction sector, output reached a six-and-a-half-year peak, leading to the biggest boost in job creation since 2015.
- The service sector also saw its growth reach its fastest pace since 2013, with a PMI reading of 51 in April.
As retail reopened in April following months of closures, retail sales jumped by 9.2%, according to the Office for National Statistics (ONS). Retail sales were higher than pre-Covid levels, delivering a much-needed boost to the sector.
Another sector reopening and expecting a boost is hospitality. However, hotel technology provider Avvio has warned that last-minute cancellations could affect hotels and place further pressure on businesses. The firm said holidaymakers are hoarding bookings to ensure they can have a break, even if travel abroad is restricted again. Cancellation rates are running at about 4%, far below the usual 30%.
The property market continued to receive a boost from the Stamp Duty holiday. Data from the Bank of England shows mortgage lending has reached a record high. Net mortgage borrowing was £11.8 billion in March, the strongest reading since the series began in 1993.
ONS figures suggest UK-EU trade is beginning to recover. But the statistics office also cautioned that the Brexit transition period has caused higher levels of volatility than usual in the last two years. In March, exports and imports with the EU (excluding precious metals) increased by £1 billion (8.6%) and £800 million (4.5%), respectively. However, figures also show the UK’s total trade with the EU has fallen below trade with the rest of the world. Between January and March 2021, total trade in goods with the UK fell by 23% when compared to the same period in 2018. Over the same period, trade with non-EU countries declined by just 0.8%.
Last month, the eurozone entered a technical recession. However, growth forecasts suggest economies are recovering as lockdown restrictions ease. Eurozone companies grew at their fastest pace since last July and this could help to pull the bloc into growth territory.
The EU Commission has also raised growth forecasts following the ongoing progress of the vaccination programme across the continent. The EU is now expected to grow 4.2% this year and 4.4% next year.
One of the challenges now facing many businesses is issues within supply chains after some sectors were forced to close for months. The German DAX Stock Index has recently highlighted this. The index was affected by chipmaker Infineon saying that ongoing shortages and other supply chain problems were hitting car production.